Holders of two of DNB Bank's discount perpetual securities, or discos, have voted down the Norwegian bank's move to de-link the legacy capital securities from Libor, while a bondholder meeting regarding a third security has been adjourned.
DNB launched a consent solicitation on the three discos last month to replace references to Libor with references to the successor rate of SOFR, as it is seeking to keep the capital instruments outstanding and use them for funding purposes.
The discos were issued in the 1980s with coupons that reference three-month or six-month US dollar Libor and lack sufficient fallback language for the rate's demise. Through the exercise, DNB sought bondholders’ consent to amend the terms of the bonds so their interest rate is calculated using compounded daily SOFR.
After bondholder meetings were convened to vote on the proposals on Thursday, DNB announced that the resolution had not passed with respect to its US$300m primary capital perpetual floating-rate notes (GB0042636166) or its US$200m perpetual floating-rate notes (GB0040940875).
The meeting of holders of DNB's US$280m primary capital perpetual floating-rate notes (LU0001344653) has been adjourned until September 21, as the quorum was not met.
DNB has previously said that if bondholders do not give their approval for their switch, synthetic US dollar Libor will be used to calculate the bonds' interest rate from August 31.
The exercise is the latest instance of a bank running into bondholder opposition while seeking to future-proof securities by substituting Libor. Market participants say much of the opposition to such consent solicitations on legacy instruments stems from investors seeking to force issuers to redeem them at par. DNB's discos were marked at cash prices in the high 70s on Thursday, according to Tradeweb.
In recent months, lenders such as HSBC, Barclays and Standard Chartered have exercised call options on discos. DNB, however, has repeatedly stated its intention to keep the bonds outstanding.
DNB had counted the bonds towards its Tier 2 capital until recently. But the European Banking Authority said in January that the notes cannot count as fully eligible Tier 2 instruments and should in fact have been grandfathered more than three years ago, after scrutinising their terms and conditions.
The EBA has warned of the so-called infection risk posed by legacy bonds to banks' capital stacks should issuers enter resolution. It has urged banks to redeem, repurchase or amend the bonds where possible.
The Norwegian finance ministry has proposed that the country implement Bank Recovery and Resolution Directive rules that would mean the discos rank between Tier 2 and senior non-preferred.
DNB said it expects the proposed amendment to the law to solve the infection risk issue and intends to keep the bonds outstanding as regular funding.
BNP Paribas is DNB's solicitation agent and Kroll Issuer Services is the tabulation agent.