Surprise! Refinancing Complex Debt Instruments Is Hard
An employee travels in a lift at the offices of Banco Santander SA in London, U.K.
Photographer: Luke MacGregor/BloombergThis article is for subscribers only.
When Banco Santander SA skipped a call date on bonds this week, unnerving sentiment in the $340 billion market for risky bank debt, it also highlighted a conundrum that bedevils all CoCo issuers: refinancing them is a lot trickier than for plain-vanilla bonds.
Sure, just last week Spain’s biggest bank raised $1.2 billion from a sale of additional Tier 1 bonds. But using those funds to redeem euro-denominated CoCos on Tuesday risked lumbering the bank with cross-currency swaps that might have made the deal uneconomical, and worse, could have put it afoul of regulators.