Santander Joins AT1 Bond Rush
Santander, one of the largest banks in Europe, has joined the rush of banks issuing Additional Tier 1 (AT1) bonds. The Spanish bank announced a dual tranche dollar offering, which is expected to raise $2.5 billion.
What are AT1 Bonds?
AT1 bonds are a type of debt instrument that is issued by banks. They are also known as perpetual bonds, as they do not have a maturity date. The bonds are subordinated to other debt instruments, meaning that they are paid out after other debt instruments in the event of a default.
AT1 bonds are attractive to investors because they offer higher yields than other debt instruments. This is because they are riskier investments, as they are not backed by any assets.
Santander’s AT1 Bond Offering
Santander’s AT1 bond offering consists of two tranches. The first tranche is a $1.5 billion offering with a coupon of 6.5%. The second tranche is a $1 billion offering with a coupon of 7%.
The bonds are expected to be issued in December and will be listed on the London Stock Exchange. The proceeds from the offering will be used to strengthen Santander’s capital base.
AT1 Bond Rush
Santander’s AT1 bond offering is part of a larger trend of banks issuing AT1 bonds. Banks have been issuing AT1 bonds in record numbers in recent years, as they look to strengthen their capital bases.
In the first nine months of 2023, banks have issued more than $50 billion in AT1 bonds. This is more than double the amount issued in the same period last year.
Risks of AT1 Bonds
While AT1 bonds offer higher yields than other debt instruments, they also come with higher risks. As they are not backed by any assets, investors are exposed to the risk of default.
In addition, AT1 bonds are subordinated to other debt instruments. This means that in the event of a default, investors may not receive the full amount of their investment.
Regulatory Pressure
The surge in AT1 bond issuance has been driven in part by regulatory pressure. Banks are under pressure from regulators to strengthen their capital bases, and AT1 bonds are one way to do this.
However, regulators are also concerned about the risks associated with AT1 bonds. They have warned banks to be cautious when issuing AT1 bonds, and to ensure that they are not taking on too much risk.
Conclusion
Santander has joined the rush of banks issuing AT1 bonds. The Spanish bank announced a dual tranche dollar offering, which is expected to raise $2.5 billion. AT1 bonds are attractive to investors because they offer higher yields than other debt instruments, but they also come with higher risks. Banks have been issuing AT1 bonds in record numbers in recent years, as they look to strengthen their capital bases. However, regulators are also concerned about the risks associated with AT1 bonds and have warned banks to be cautious when issuing them.