‘Fresh’ tier-one issuance may hit credit derivatives spreads

A convertible bond structure used by Benelux bancassurer Fortis in an April 29 issue could, if replicated throughout Europe by other banks and insurance companies, lead to a significant widening of credit default spreads and a new focus on basis risk associated with recovery rates, say bankers at JP Morgan Chase who worked on the deal.

Some banks and insurers view Fortis’ e1.25 billion floating-rate, equity-linked subordinated hybrid (Fresh) security as the ‘holy grail’ of tier-one issuance

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