External Content

The following content is sourced from external partners. We cannot guarantee that it is suitable for the visually or hearing impaired.

Sept. 2 (Bloomberg) -- Banco Santander SA is selling a record amount of the riskiest bank bonds as the market for the debt restarts after a three-month hiatus.

Spain’s largest bank is marketing as much as 2.5 billion euros ($3.3 billion) of contingent capital notes that convert to equity if capital ratios fall below preset levels, the Madrid- based lender said in a statement. It’s the biggest sale of the high-yield notes since Credit Suisse Group AG issued $2.5 billion of 6.25 percent securities in June, according to data compiled by Bloomberg.

Santander is the first major European lender to come to the market since Societe Generale SA sold $1.5 billion of additional Tier 1 notes in June, the data show. It’s taking advantage of a drop in borrowing costs as the debt recovers from last month’s selloff that pushed yields up to a six-month high.

“There’s a bit of a rush to issue because rates are so low and it’s very cheap for the issuer,” said Francois Lavier, a money manager at Lazard Freres Gestion SAS in Paris, which manages about $19 billion. “These kinds of securities are in vogue among investors because it’s very difficult to get this level of yield from issuers of this quality.”

The average yield investors demand to hold the notes tumbled 45 basis points since Aug. 8 to 6.42 percent, according to Bank of America Merrill Lynch’s High Yield Contingent Capital index.

Additional Tier 1 bonds are designed to shift a bank’s losses to investors instead of taxpayers. They have no set maturity and optional interest payments, meaning cash outflows can be prevented in a crisis.

Santander’s new bonds will have a coupon of about 6.375 percent and can be bought back by the lender after seven years, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The notes will automatically convert into stock if the bank’s capital ratio falls below 5.125 percent of assets.

--With assistance from Levent Kucukreisoglu in London.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Jennifer Joan Lee, Michael Shanahan

Bloomberg