Debt or equity?

1 May 2013 By Neil Unmack Follow @unmack1

A bank from a debt-challenged country was first to issue a new breed of loss-absorbing bonds. Central bank-whipped bondholders shrugging off the euro zone crisis are desperate for yield. A 9 percent coupon looks juicy, but pays investors less than equity, with no upside.

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BBVA’s inaugural Additional Tier 1 bond got off to a strong start on April 30 as investors piled into the new deal despite a complicated structure that drew criticism from market observers.
Spain’s second largest bank attracted orders in excess of $9.25 billion for its perpetual non-call five-year bond and the coupon was fixed at 9 percent. The bond will be sized in the $1.25 billion-$1.5 billion range.
Lead managers BBVA, Bank of America Merrill Lynch, Goldman Sachs and UBS began marketing the deal on Monday at the 9.5 percent area, according to a market source, and this was then revised to 9.25 percent area during Tuesday’s bookbuilding.

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