Bank of America Corp. sold the first structured notes tied to Greece’s largest refiner, Hellenic Petroleum SA, as investors bet on a recovery in the nation at the heart of Europe’s debt crisis.
The lender raised a total $8 million in the first securities linked to a Greek company since 2008, according to data compiled by Bloomberg. The notes combining debt with derivatives were offered in four parts and mature in ten weeks to 36 weeks.
Investors are returning to Greece after international creditors approved a further 7.5 billion euros ($9.7 billion) of bailout funds to the country last week, citing progress in fiscal and structural reforms. That was followed by an upgrade from Fitch Ratings, which sparked a sovereign-bond rally that pushed yields on 10-year bonds to the lowest in three years.
“Positive momentum is building in Greece and some investors are assuming the worst is over and looking for opportunities to profit from a recovery,” said Nordine Farsi, head of structured credit trading at Landesbank Baden-Wuerttemberg in London.
The zero coupon bonds linked to Hellenic Petroleum were sold at a discount of 1.7 percent to 6.3 percent. Investors in zero coupon securities typically receive returns based on the difference between the discount and par.
Alexandra Parry, a spokeswoman for Bank of America in London, and Vasilis Tsaitas, a spokesman for the Athens-based refiner, declined to comment on the notes.
Hellenic Petroleum entered the bond market for the first time last month, selling four-year notes that pay a coupon of 8 percent, according to data compiled by Bloomberg. Investor demand for riskier assets spurred the unrated refiner to increase the size of the offering to 500 million euros from 400 million euros.
Demand for debut bonds from Greek refrigerator equipment supplier Frigoglass SA, which sold 250 million euros of debt last week, also exceeded expectations, said Torsten Tuerling, chief executive of the junk-rated company.
“There is strong momentum towards anything Greek at the moment,” said Gabriel Sterne, an economist at Exotix Ltd., a London-based brokerage specializing in illiquid bonds and loans.
Fitch upgraded Greece’s credit rating to B- from CCC, or six levels below investment grade, on May 14, citing progress in rebalancing the economy and a lower risk of exit from the euro area. Still, public debt sustainability remains “far from assured and will be dependent on economic recovery and a sustained primary fiscal surplus,” Fitch said in a statement.
Greece’s economy will shrink another 4.2 percent this year, its sixth year of recession, before recovering 0.6 percent in 2014, according to a European Commission report published May 17, which described the country’s outlook as “inherently uncertain.” Unemployment also reached a record 27 percent in February, according to the Hellenic Statistical Authority.
Xenon Capital Plc, a special-purpose vehicle incorporated in Ireland, sold the last structured notes tied to a Greek company in May 2008, Bloomberg data show. The 5 million euros of 3 1/2-year notes were linked to the debt of Alpha Bank SA, Greece’s third-biggest lender.
Credit-linked notes can have higher yields and tailored maturities that may not be available in the bond market. Investors suffer losses in the event of a default by the bank issuing the securities or the linked entity. [Bloomberg]