Rothschild Tussles Over 1980s Bond as Holders Chase Payout

Rothschild & Co. is facing pressure from some bondholders who want the bank to repurchase a deeply discounted bond sold almost 40 years ago.

(Bloomberg) — Rothschild & Co. is facing pressure from some bondholders who want the bank to repurchase a deeply discounted bond sold almost 40 years ago.

The notes, known in the industry as discounted perpetuals or discos, were sold back in 1986, with interest payments linked to the now-defunct Libor reference rate. Rothschild had offered to tie the payments to another rate, called the secured overnight financing rate, or SOFR.

But on Monday, bondholders blocked that option, according to a statement released by the bank. The main reason some investors voted against Rothschild’s proposal is that they still would like the company to buy back the notes, said two bondholders, who asked not to be identified. Representatives of Rothschild & Co did not respond to a request for further comment.

Rothschild said it doesn’t intend to redeem the notes and instead expects the future coupon to reference a synthetic type of Libor, that will be quoted until September 2024. It’s talking to bankers about interest-rate fixes beyond that.

The bonds are part of a wave of subordinated debt issued in the 1980s at very tight spreads and no longer counting as regulatory capital. Some investors have been buying up the securities in recent years, hoping to hit the jackpot if an issuer redeems them.

They’ve been right this year: HSBC Holdings Plc triggered a jump in discounted perpetual prices in early April when it announced its intention to redeem its bonds, and the notes received a further boost last month when Barclays Plc followed suit.

Rothschild notes also rallied this year in anticipation that the bank would follow a similar path to Barclays and HSBC.

The bonds reached as high as 80 cents on the dollar in June, up from lows of 63 cents in March. They’ve since given back some of those gains after Rothschild said it would talk to investors about moving away from Libor, which was seen as a sign that the company planned to keep the bonds outstanding.

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