Deutsche Bank will pay debts, Moody’s asserts

The debate over

NEW YORK Deutsche Bank’s financial health continued Monday with a major ratings agency weighing in to say that the bank can repay its debts — at least through 2017.

Deutsche Bank’s ability to make interest payments on its riskiest debt through next year “appear secure, barring a major, unforeseen event,” Moody’s analyst Peter Nerby said in a research note.

The vote of confidence comes as investors have sent the bank’s stock down close to 30% this year amid growing fears of a default.

At issue is Deutsche Bank’s ability tomake good on a newfangled debt instrument known as Addition Tier 1 notes ( AT1), a type of contingent convertible, or CoCo for short.

CoCos are bonds that convert into stock when a bank’s capital levels fall too low. They were hot following the financial crisis as a way to prevent against another banking bailout, and yield- hungry investors bought them up when market conditions were rosier.

Now that energy prices are plummeting and fears of an economic downturn are rising, inves-

tors are fleeing CoCo out of fear that banks could stop making interest payments if losses start to accumulate. The selling has especially plagued Deutsche Bank, which reported poor fourth- quarter earnings and which warned that litigation costs could be a drag on 2016 results.

Deutsche Bank also is going through a costly restructuring, further fueling fears about its cashflow.

In an effort to boost investors’ confidence, Deutsche Bank on Friday said that it would buy back $ 5.4 billion in secured, non- CoCo debt to prove it has a “strong liquidity position.” The move pushed the bank’s stock up 12%.

Deutsche Bank’s recently announced tender offer is “a modest adjustment to the capital structure that does not have any direct bearing in our credit assessment of the firm,” Moody’s Nerby said.

Last week, Moody’s competitor Standard & Poor’s downgraded the bank’s AT1s to B+ from BB- on concerns that future losses could restrict its ability to make good on the non- investment grade debt.

And this month, research firm Cred-Sights warned that Deutsche Bank’s ability to make payments in 2017 could face trouble due to any number of unforeseen financial burdens, including increased litigation expenses.