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UBS on Wednesday started promoting Extra Tier 1 (AT1) bonds — which had been on the coronary heart of controversy throughout its emergency rescue of Credit score Suisse — for the primary time since finishing the takeover.
The Swiss banking big is advertising two tranches of U.S. greenback AT1 bonds, a non-call five-year providing round a ten% yield and a non-call 10-year providing round 10.125%, based on LSEG information service IFR. Non-call bonds are bonds that solely pay out at maturity.
UBS confirmed to CNBC that it’s providing extra tier 1 securities, however didn’t touch upon the small print of the contracts and stated it would present extra data when the providing is full.
The wipeout of $17 billion of Credit score Suisse AT1 bonds, as a part of the rescue deal brokered by Swiss authorities in March, brought on uproar amongst bondholders and continues to saddle the Swiss authorities and regulator with authorized challenges.
AT1 bonds are thought-about a comparatively dangerous type of junior debt and are sometimes owned by institutional traders. They had been launched within the aftermath of the 2008 monetary disaster as regulators seemed to divert danger away from taxpayers and enhance the capital held by monetary establishments to guard in opposition to future crises.
Fitch on Wednesday assigned the brand new AT1 notes a “BBB” score, 4 notches under UBS Group’s total viability score of “A,” with two notches for “loss severity given the notes’ deep subordination” and two for “incremental non-performance danger.”
“UBS’s new AT1 notes will comprise a everlasting write-down mechanism at problem. Nonetheless, topic to approval by UBS Group AG’s 2024 AGM, the everlasting write-down mechanism will likely be changed by an fairness conversion mechanism from the date of the AGM, which can convey the phrases consistent with different European markets,” the rankings company stated.
“The conversion function would imply that, if accepted by the AGM, the notes could be transformed right into a pre-defined quantity of share capital of UBS Group AG if the latter’s frequent fairness Tier 1 (CET1) ratio falls under a 7% set off, or if a viability occasion is said by FINMA [Swiss Financial Market Supervisory Authority].”