Investors snap up Santander CoCo bond

Spain's largest bank Santander sold a 1.5 billion euro ($1.67 billion) CoCo bond on Thursday, its first since it shocked investors last February with its decision to not redeem a similar hybrid debt issue. It priced the CoCo, "callable" after six years, for a 4.375% coupon. Despite last year's controversy, orders topped 10 billion euros, according to a lead manager update seen by Reuters.

"CoCos" or contingent convertible bonds, also known as AT1s, convert into equity if a bank's capital level falls below a certain threshold. They were introduced after the 2008 financial crisis to ensure bondholders and shareholders both incur losses if a bank runs into difficulty, before taxpayer cash is needed.

These securities tend to be perpetual, that is, they do not mature on paper, but issuers have the option to "call" them after a number of years, which they almost always do.

The new deal comes in conjunction with Santander's announcement it would redeem early its 1.5 billion euro 5.481% perpetual bond at the next call date on March 12.

Last year it stunned investors when it opted not to call the 1.5 billion-euro CoCo on the Feb. 12 call date, soon after issuing a new one. It became the first European lender to not redeem this kind of debt and sparked fears other banks would follow.

But the fears have since abated and subordinated bank debt has rallied; the average yield on the iBoxx index of euro zone subordinated bank bonds now stands at 0.92%, versus 2.26% a year ago.