Issuance in two tranches: UBS issues first AT1 bonds since CS deal

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According to the statement, both tranches of $1.75 billion will carry 9.25 percent interest. In both cases, these are permanent bonds; the first can be repaid by UBS after five years, and the second after ten years.

According to UBS, the bond will qualify as additional core capital (Additional Tier 1) under Swiss law. Accordingly, it is also subject to deletion in the event of a specific emergency (“trigger event” or “viability event”). However, in such a case, it is also possible to convert the securities into shares, provided that the shareholders approve a minimum amount of convertible capital.

According to Bloomberg’s media report from the previous day, the AT1 bond faced tremendous demand. The agency reported on Wednesday evening that AT1 tranches have received more than 15 billion requests so far.

AT1 bonds are generally rated as speculative by rating agencies. It is the most “subordinate” instrument other than equity capital (like shares): If the bank gets into trouble, investors will be served only after all non-equity debt instruments (like Pfandbriefe or “normal” bonds). As long as things are going well, investors can earn much more than on “regular” bonds because the interest rate is much higher.

However, in the CS case, the holders of AT1 bonds actually had to fall behind the shareholders and suffered a complete loss following the urgent takeover of UBS. CS shares – unlike the bonds written off – still had value due to the takeover price of approximately 3 billion francs. This reversal of the creditor hierarchy caused heated debate.

UBS is facing legal trouble after its CS-AT1 bonds were declared worthless in March. As of August, the Federal Administrative Court received complaints from approximately 3,000 complainants against the Finma decision. (SDA)

Source :Blick