Most holders of UBS bonds issued just weeks ago are keeping them

MOST investors who bought UBS Group bonds issued days before its arranged takeover of Credit Suisse Group have chosen to hold on to the notes, in what is seen as a vote of confidence in the lender. 

The Swiss bank had launched a buyback of two euro-denominated notes, offering investors an opportunity to get out of the debt issued on March 9 – just before it agreed to take over its troubled rival in a deal that triggered market chaos and a spike in both lenders’ credit risk.

Holders of about 454 million euros (S$658.7 million) of 2028 maturity notes and 273 million euros of 2032 notes opted to tender them, leaving about 1.046 billion euros and 977 million euros of the securities outstanding respectively, according to a regulatory filing this morning. The notes were issued by UBS Group, the holding company that will subsume the Credit Suisse assets.

The result was a show of support in UBS, said Oliver Sinnott, a fund manager at IQ EQ Fund Management Ireland. “If investors thought there was a problem and could not sell the bonds in the market, they would have used this as a liquidity event and got out,” he said. Sinnott added that he owns some UBS bonds, but not the ones subject to the buyback.

The bonds were bought back at the price they were originally issued at, yet both were quoted higher in Wednesday (Apr 5) trading. That meant that the price being offered by UBS in the tender was out of date, according to Sinnott.

Both UBS and Credit Suisse credit default swaps, a key pain point at the height of the panic over the banking system, have eased back down to pre-merger levels, according to CMAI pricing. UBS’s shares were also back trading around pre-takeover levels a couple of sessions after the deal was announced. BLOOMBERG