Tag Archives: DEPFA LT2 Float 2015

Depfa: No sale, LT2 and the “Kebab Zerobond” (ISIN XS0221762932)

Warning: The securities discussed are illiquid and/or risky and the author might have bought them already before publishing the posts. Please do your own research and if you decide to invest nevertheless, use apropriate limits !!!


For readers of my blog, Depfa is no stranger. I did buy a 2015 floating tier 2 subordinated bond in 2011 and this has been a very good investment so far.

To summarize the story of Depfa for “new” readers quickly: Depfa was initially a “full service” German mortgage bank which then split up into a German mortgage bank (Aareal) and an Ireland based “public funding” bank (Depfa Plc). Shortly before the Lehman crisis, Depfa got bought by another German mortage bank, HypoRealestate (itself a spin-off from Hypovereinbsank). The rest is history: Depfa/Hyporeal Estate was the first bank to go belly up and needed to be rescued by the German Government.

After beeing rescued, the startegy was to concentrate on German Mortgage banking and to sell the old Depfa part (which has been “cleansed” from PIIGS exposure via a bad bank). The sale process seemed to have been already quite far advanced, with Leucadia as favourite, before very surprisingly the German Government pulled the sale in the last minute before closing.

Germany has intervened to prevent bailed-out bank Depfa from falling into US hands just hours before a deal was about to be struck.

The government’s financial market stabilisation fund, known as Soffin, said on Tuesday evening that Depfa should be wound down by the German authorities rather than sold for what would have been €320m to US investor Leucadia, according to people familiar with the deal.

What does that mean for Depfa bonds in general ?

Tier 1 bonds of Depfa got hit quite hard, although one must say that they enjoyed a great run up until then as this chart shows:

The reason here is I think the expectation that the FMS, which will have the task to run down Depfa, will not do anything actively with the subordinated bonds, whereas any private buyer would have tried to get the subs out as soon as possible under par in order to realize value more quickly.

Although it is not clear, how Depfa will be passed over to FMS (most likely a sale at book in my opinion, in order to facility a Hypo Real Estate sale in 2015), I think it is fair to asume that sooner or later FMS will be the owner of all assets and liabilites.

FMS itself is a Government owned “bad bank”. As bad banks need constant refinancing, FMS issues new bonds on a regular basis like this one. FMS is owned by SOFFIN, the German “bank rescue” vehicle, which itself carries an explicit Government guarantee. A good description of the FMS can be found here (in German, page 108 ff).

So once, Depfa has been transferred to FMS, in principle the liabilites should be considered FMS liabilities which again carry a AAA rating and trade more or less at levels similar to KfW.

Impact on subordinated bonds

The bloomberg article above mentioned that Depfa subordinated investors were afraid of the following:

“The main risks facing creditors now are the risk of burden-sharing as well as an indefinite coupon ban,” the analysts wrote in a note to clients on May 14. “It’s difficult to see clear upside from current levels and further volatility is likely.”

I share the opinion that it is very unlikely that coupons on Tier 1 bonds will be paid in the near future, although, at some point in time FMS might want to buy out the Tier 1 investors as well. But at current levels (50% of nominal), this is not a very attractive speculation.

However for the Tier 2 bond I own, the transfer of Depfa to the FMS is actually good news. I cannot think of any realistic scenario which would lead to a loss for the Tier 2 until maturity in 2015. If they would like to screw those bond holders, I am pretty sure they will have issues refinancing and this is the last thing they want. The LT2 bond priced consequently barely moved as we can see in the Chart:

So far, the LT2 has been a very good investment. Around 30% annualised return with, in my opinion, very little risk. If one has cash to park, I think the bond is even now a very interesting investment. You get around 5% annualized return until maturity December 2015 which is effectively Governemnt guaranteed.

I will therefore increase the position from a “half position” to a full 5% as I have plenty of liquidity in the portfolio to park.

The Depfa 2020 TRY “Kebab Zerobond” (ISIN XS0221762932)

When I started to look at Emerging markets earlier this year, especially when I looked at Koc Holding, I was surpried that Depfa had Turish Lira bonds outstanding.

When you search in Bondboard.de for TRY bonds which are traded in Germany it is even interesting to see that the 2020 Depfa TRY Zero bond is the highest yielding TRY bond available.

At a current yield of ~13% p.a., the bond trades around 4% p.a. wider than a 2 year longer EIB Zero bond and around 3% wider than similar Turkish Government (coupon) bonds.

Why does the bond look cheap ?

1. First of all, I think the problem is that the “official” rating of Depfa is BBB. Many investors will simply compare the bond with other financial BBB issues and apply respective spreads. As many of the Italian and Spanish banks are BBB as well, BBB financial spreads are high.

2. The bond is relatively small (425 mn TRY) and illiquid as the 100 K TRY denomination will deter many smaller investors (at ~47%, you need to pay around minimum 17k EUR to buy one bond). I think also, many investors prefer coupon paying bonds to zero bonds, for most investors “zero” bonds are an exotic security

3. Finally, I think not many people did like the combination of the Depfa structural risk and the TRY currency risk. Either you like Emerging markets and TRY or you want to play the Depfa capital structure, but usually not both.

However for me, the bond is the ideal combination: I do like the Depfa risk as I think that any Senior Depfa bond will be a AAA equivalent bond after the transfer to the FMS. Additionally I do also like the TRY risk. Clearly, there is downside potential and he TRY/EUR is still volatile as the chart shows:

As an investor you can gain (or loose) money with this bond based on 3 risk faktors:

A) TRY/EUR exchange rate. Based on the current interest rate differential, the market assumes that the TRY will devalue vy ~8% p.a. against the EUR.Perosnally, I see a good chance that the devaluation could be less than that. Under many metrics (PPP, BigMac index etc.) the TRY is fundamentally cheap compared to EUR and USD although there is clearly political and econimical riskimplied. The currency factor is clearly no “free lunch”.

B) Turkish interest rates. As a zerobond, the bond has a duration of ~6,5 years, i.e. if interest rates go up or down 1% the bond price will move +/-6,5%. Currently the yield curve in Turkey is flat or even inverse, with the short end slightly higher. even if long term rates stay constantand only short terms go down, one can expect some “extra juice” from the potential roll down of the bond.

C) Depfa Spread. Compared to an EIB Bond, the implicit credit spread is around 3-4% p.a. although in my eyes the credit risk is similar to an IB or german Government bond. I think there is also a good chance that this could normalize over 2-3 years. If there is some rating action following the transfer, this could even happen quicker.

All in all, I find the TRY Depfa bond very attractive and will by a half position for the portfolio. As the risk is predominantly TRY, I will allocate it to the Emerging Markets bucket.

My expectation is that I can make ~50%-60% in local currency within 3 years, if the yield curve normalizes and the Depfa Spread tightens including the normal “carry” of 13%. If half of that shows up in EUR, I will be already very happy 😉

Hedge fund edition

For a smart (hedge) fund with good access to securities lending, a long (Depfa)-short (TRY EIB 0% 2022) trade could be interesting. Despite the slight duration mismatch, this could be an interesting way to speculate on the relative spread tightening between Depfa/FMS and the EIB bonds with an interesting implicit positive carry, although I am not sure how easy it is to borrow the EB bonds.


In my opinion, the planned transfer of the old Depfa to the FMS is good news for LT2 and Senior bonds of Depfa, as the bonds become effectively German Government equivalent. I will therefore increase my existing lT2 position up to 5% and invest a half position (2,5%) into the Depfa 2020 TRY bond as Emerging Market investment.

P.S.:Why did I call this the “Depfa Kebab bond” ?

Doner Kebab is the most popular German fast food.

Based on Turkish ingredients, the current form (with salad etc.) is supposed to be a Turkish-German invention and in my opinion a good omen that a Turkish-German combination can be really delicious…..

Exotische Wertpapiere: DEPFA LT2 Floater 2015 (ISIN XS0229524128 )

Achtung: Das vorgestellte Wertpapier ist sehr markt eng und der Verfasser hält selber Stücke dieser Anleihe !!! Jeder potentiell interessierte Investor sollte bitte seine eigenen Recherchen durchführen. Dies ist keine Anlageberatung o.ä.

Ein Wertpapier mit garantiertem Würgfaktor:

Emittiert 2005 als “Lower Tier 2” mit einem variablen Coupon von der Depfa PLC (direkte Tochter der Hyporeal Estate, Sitz in Irland)

Die Coupon Formel lautet wie folgt:

3 MO Euribor +20 bp. bis Ende 2010
3 MO Euribor +70 bp ab Anfang 2011, also ein “Mörder Step up” von 50 bp.

Die Depfa hätte theoret. ein Call Recht ab 15.12.2011 zu 100, das werden die “Freunde” aber vmtl. bei dem niedrigen Spread nicht ausnützen.

Schaut man sich den Chart an, sieht man dass der Kurs 2009 auch schon mal deutlich niedriger war:

D.h. tiefer geht immer. Bei einer Stückelung von 50 Tsd EUR pro Stück ist das natürlich nichts fürs Taschengeldportfolio.

Interessanterweise steht auf der Detailseite der Irischen Börse eine Endfälligkeit 15.09.2015, auf Bloomberg 15.12.2015. realistischerweise dürfte die Endfälligkeit aber 10 Jahre nach Emission (15.09.2005) liegen, deshalb gehe ich von der Richtigkeit der Daten bei der Irischen Börse aus.

Edit: Gerade gesehen, die Depfa weisst im Anhang auch Laufzeitende 15.12.2015 aus, dann glauben ich das auch.

Die Anleihe scheint selber unter dem allegemeinen Emmissionsprogramm herausgegeben worden zu sein, hier der Link auf die Dokumentation. Das funktioniert im Prinzip so:

– in einem generellen Prospekt werden die allgemeinen Bedingungen festgelegt
– dann werden nochmal in einem “Final Terms” Zusatz insbesondere die Zinssätze und die Laufzeitabhängigen Geschichten (Coupon Termin, Call Rechte etc.) geregeglt.

Für den 2015er ist es mir leider nicht gelungen, die Final Terms aufzutreiben. Ich bin lediglich auf ein paar Kurzerwähnungen z.B. hier. gestossen.

Man kann aber denke ich annehmen, dass es sich um “Standard Lower Tier 2” Konditionen handelt. Das bedeutet insbesondere:

Coupons müssen auch im Verlustfall bezahlt werden (“no deferal”)
– es gibt keinen Writedown o.ä.
Subordination gibt es nur im Fall einer Insolvenz

Theoretisch wäre die aktuelle Rendite bis zum Laufzeitende am 15.09.2015 wie folgt zu berechnen:

Annahme für Variablen Zins: Der 3 monats Euribor liegt momentan bei ca. 1,58%. Geht man mal von 1,5% aus, dann würde der Coupon p.a. näherungsweise 2,2% betragen.

Bei einem aktuellen Kurs von ca. 52% ergibt das dann bis zum Laufzeitende 15.09.2011 ungefähr eine Rendite von 17,5% p.a. 20,8%.

Jetzt muss man sich natürlich die Frage stellen, wie wahrscheinlich ist es, dass die Depfa PlC die nächsten Jahre in die Insolvenz gehen wird, oder ein vergleichbarer Eingriff stattfinden wird, der die LT2 Papiere “beschädigen” könnte.

Um eines vorweg zu sagen: Die Lage ist komplex und ich erhebe keinerlei Anspruch auf Vollständigkeit !!!

Der Geschäftsbericht 2010 der DEPFA PlC ist sehr ausführlich und lesenswert. Ich empfehle jedem der sich für die Anleihe interessiert erstmal den Bericht gründlich durchzuarbeiten.

Meine These, dass die Chancen für eine Rückzahlung des 2015er Bonds relativ gut sind stützt sich vor allem auf folgende Argumentation:

1. Zum Jahresende 2010 hatte die Depfa Gruppe insgesamt 22 Mrd. Darlehen von der Hyporealestate bzw. Deutsche Pfandbriefbank
2. Eine “echte” Pleite der Depfa hätte die sofortige Pleite der DPB zur Folge
3. mit einer Pleite der DPB wäre auch der Deutsche Pfandbriefmarkt, die letzte Hoffnung der Deutschen Banken, am Ende.

(kurze Anmerkung: Diese 22 Mrd. tauchen in der Presse auch immer fälschlicherweise aös Teil des Irland Exposure Deutscher Banken auf)

Klar besteht das Risiko sonstiger negativer Entwicklungen, aber aus meiner Sicht ist das Chance Risiko Profil beim derzeitigen Preis relativ attraktiv.

Im Vergleich zu den Tier 1 Anleihen der diversen anderen Problembanken hat man hier auch den Vorteil, dass die Endfälligkeit eine Art “Katalysator” ist, der Vorteil zu den Genußscheinen ist die Tatsache, dass die Coupons auch im Verlustfall gezahlt werden und kein Write down im “Going concern” Fall droht.

Ein interessantes Thema noch am Rande: Googelt man nach der ISIN, sieht man, dass ein größerer Teil der Anleihen von Geldmarktfonds gehalten wird. Das war damals auch durchaus gängig, alles was variable verzinste und Spread hatte in einen Fonds zu packen. Für viele Fonds dürfte das natürlich ein Problem sein, weil die Anleihe Non-Investment Grade (B3) gerated ist. Wenn also mal Pakete auftauchen wie am Montag (500 k) könnte das schon auch mal ein Geldmarktfonds in Not sein.

Die Tatsache, dass ein “Floating LT2” ohnehin ungewöhnlich ist, dürfte noch zusätzlich dazu beitragen, dass es keine “natürlichen” Käufer für dieses Papier gibt.

Fazit: Aus meiner Sicht bietet die Depfa LT2 Anleihe trotz großem Würgfaktor ein recht interessantes Risiko/Return Profil, insbesondere in dem Laufzeit “Bucket”. Für das Musterdepot wird deswegen eine erste Position in Höhe des Handelsvolumen vom 17-18.10. (500k nominal) zum Kurs von 52% aufgebaut.