Credit Suisse pays elevated rate in US$3.75b bond sale
CREDIT Suisse Group is paying up to raise billions of US dollars in the US and UK as the troubled lender relies on attractive terms to keep funding plans in place.
The embattled Swiss lender’s New York branch sold US$3.75 billion of two-year and five-year notes on Wednesday (Jan 4) to yield 370 basis points over Treasuries, according to a person with knowledge of the matter. That’s much higher than average risk premiums across investment grade credit.
Its London branch is offering a benchmark-sized pound note on Thursday, meaning at least £250 million, due in just over three years, according to another person familiar. Initial price talk of about 435 basis points over the UK Treasury benchmark suggests it’s similarly paying up for that funding.
Credit Suisse is in the throes of a huge restructuring that will see it cut thousands of jobs and reshape its investment bank to put an end to a string of huge losses and scandals. The burden of higher interest rates on its debt is another hurdle for a bank that’s set to report its fifth-straight quarterly loss. The Swiss firm’s net interest income fell by 14 per cent in the first nine months of 2022, a time when many banks were net beneficiaries of a rising rate environment.
Scepticism about the restructuring is helping drive up borrowing costs. The firm also had to pay over 9 per cent in November when it sold US$2 billion of high-grade bonds. Those bonds are now trading at 104.7 cents on the US dollar, up from par when the notes were issued, according to Trace bond trading data.
“Its credit standing has taken a severe knock in recent years due to various risk management misses,” said Bloomberg Intelligence strategist Jeroen Julius. The lender’s liquidity suffered from the recent turmoil as a result, Julius wrote in December.
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The bank has about US$24 billion in bond maturities this year. To further shore up its finances, Credit Suisse recently raised about 4 billion francs through a rights issue and selling shares to key investors including the Saudi National Bank. chairman Axel Lehmann said the capital increase will make the lender “rock solid,” helping it to carry out the overhaul, which will see the bank spin out an investment banking boutique, shrink trading operations and cut as many as 9,000 jobs.
The bank’s long-term rating was downgraded by S&P Global Ratings in November to just above junk status, underscoring the challenges after it laid out the radical ovrhaul plans, which included a 4.03 billion franc loss in the third quarter and warnings of more losses to come in the final three months of the year.
S&P cut the Swiss bank’s long-term rating to BBB- from BBB, with a stable outlook. That’s just above the BB “speculative grade.” The US ratings firm, echoing several analysts, said it sees “material execution risks amid a deteriorating and volatile economic and market environment” for the bank. It also signalled that some details around the lender’s planned asset sales remain “unclear.”
The coupon on the most recent bond issue compares with rivals such as Dutch lender Rabobank. It issued two-year debt, but at a spread of 65 basis points over Treasuries.
The US bond sale follows a surge in issuance Tuesday, where 19 borrowers sold about US$34 billion across more than 40 tranches in the first business day of 2023. At least 13 high-grade companies issued debt in the investment-grade bond market Wednesday, adding another US$19.5 billion to the week’s tally. Many blue-chip firms are looking to lock in funding costs before any economic downturn pushes risk premiums higher.
Credit Suisse was the sole bookrunner on that sale. BLOOMBERG
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