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UBS on Wednesday, for the first time since the completion of the takeover, started selling additional Tier 1 bonds (AT1), which were at the heart of the controversy during Credit Suisse’s bailout.
The Swiss banking giant is marketing two tranches of US dollar AT1 bonds, a non-call five-year offering at around 10% yield and a non-call 10-year offering at around 10.125%, according to LSEG news service IFR. Non-call bonds are bonds that do not pay out until maturity.
UBS confirmed to CNBC that it is offering additional Tier 1 securities, but did not comment on the details of the contracts and said it will provide additional information when the offering is completed.
The destruction of $17 billion of Credit Suisse AT1 bonds, as part of the bailout deal struck by Swiss authorities in March, caused an uproar among bondholders and continues to saddle the Swiss government and regulator with legal challenges.
AT1 bonds are considered a relatively risky form of junior debt and are often owned by institutional investors. They were introduced in the wake of the 2008 financial crisis, when regulators sought to divert risk from taxpayers and increase financial institutions’ capital to protect against future crises.
Fitch on Wednesday assigned the new AT1 bonds a ‘BBB’ rating, four notches lower than UBS Group’s overall viability rating of ‘A’, with two notches for ‘the severity of losses given the deep subordination of the notes’ and two for ‘incremental non-performance risk’. .”
“UBS’s new AT1 bonds will include a permanent amortization mechanism. However, subject to approval by the AGM of UBS Group AG in 2024, the permanent depreciation mechanism will be replaced by a share conversion mechanism from the date of the AGM. will bring conditions in line with those of other European markets,” the rating agency said.
“The conversion function would mean that, if approved by the AGM, the notes would be converted into a predetermined volume of share capital of UBS Group AG if the latter’s common equity Tier 1 (CET1) ratio falls below a threshold of 7%. or if a viability event is declared by FINMA [Swiss Financial Market Supervisory Authority].”
