Deutsche Bank AG (DBK) sold $10.7 million of five-year notes tied to Apollo Global Management LLC (APO:US), the largest offering linked to the buyout company since at least January 2010.
The securities yield 10.4 percent a year as long as Apollo’s shares don’t fall below $15.76, which is 50 percent of its closing price on the issue date of Feb. 21, according to a prospectus filed with the U.S. Securities and Exchange Commission. The bank will redeem the debentures after a year if the stock matches or is higher than the initial value of $31.52 on specific monthly observation dates.
Investors can lose money if the securities aren’t redeemed before maturity and the stock declines more than 50 percent, with all capital at risk, according to the prospectus.
Leon Black’s company has stocked up on high-risk debt, swelling its credit unit to about $103 billion in assets, as it finds fewer companies to acquire.
“The credit business is going to be the biggest driver of assets, generally,” Robert Lee, an analyst at Keefe Bruyette & Woods Inc. in New York, said in a telephone interview.
Keefe Bruyette & Woods confirmed its 12-month Apollo price target (APO:US) of $38.00 on Feb. 9. The New York company rose to $32.01 today, up 1.2 percent for the year.
Investors bought $15.1 million of structured notes tied to Apollo’s stock this year, up from the $14.2 million sold during all 2013, Bloomberg data show.
Bloomberg started collecting comprehensive data on U.S. SEC-registered structured notes in 2010.
Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts with values derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
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