Deutsche Bank Bond Buyers Return for More Junk-Like Yields

  • German lender added $1.5 billion to a $3 billion deal
  • Notes priced to yield 2.9 percentage points over benchmark

Deutsche Bank Said to Boost Size of Private Debt Sale

Investors piled into Deutsche Bank’s latest bond sale, seeking a second helping of notes sold less than a week ago at yields resembling junk debt.

The German lender sold another $1.5 billion of investment-grade notes on Tuesday to mostly the same investors who bought last week’s $3 billion private deal, according to a person with knowledge of the matter, who asked not to be identified because the information isn’t public. Pacific Investment Management Co. was among the buyers, according to data compiled by Bloomberg.

The deal was priced at a premium of 290 basis points, close to the average of 300 basis points for highly-rated junk debt in dollars and more than twice the 143 basis points Deutsche Bank paid for similar notes in August 2015, data compiled by Bloomberg show.

The notes were Deutsche Bank’s first since the U.S. Justice Department demanded $14 billion to settle claims that it misled investors over mortgage-backed securities before the American housing crisis. The claim has fueled concerns about the lender’s financial health and pushed its share price down more than 45 percent this year.

“The private debt sale shows they can still access the market for sizable term funding,” said Ben Sy, head of fixed income, currencies and commodities at the private banking arm of JPMorgan Chase & Co. in Hong Kong. Even so, “it has to pay a significant premium and that may shake confidence among investors,” he said.

Amy Chang, a media relations officer at Deutsche Bank in Hong Kong, said in an e-mail that she couldn’t immediately comment.

Investor Inquiries

The bonds will become more vulnerable to losses from Jan. 1, when a German law takes effect that subordinates existing notes to deposits, derivatives and structured notes. Senior bonds could be bailed in if post-tax losses exceed 20 billion euros or if some lower-ranking bonds don’t provide a cushion because they’re not governed by EU law, Hank Calenti, an analyst at Wells Fargo & Co. in London, wrote in a note to clients.

“Short term, it’s a good thing for Deutsche that they’re raising money even though they have to pay a higher spread than they want to,” said Jonathan Rochford, a Sydney-based portfolio manager at Narrow Road Capital, which manages A$35 million ($26.5 million). “It gives people confidence that they’re getting funding. But the long-term issues haven’t changed. They’re still undercapitalized.”

The October 2021 notes are combined with a sale on Oct. 7 and pay a coupon of 4.25 percent, according to data compiled by Bloomberg.

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