As more and more borrowers reach the 15% limit (of total tier-1 capital) for so-called innovative debt – that is, bonds with coupon step-ups – issuing non-innovative hybrids is the only option remaining.
Traditionally only retail investors have felt comfortable with the extension risk that the lack of a coupon step-up at the call date theoretically results in. Over the past three or so years, the sheer depth of demand for credit has encouraged institutional investor to accept this risk.
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