UBS issues first AT1 bonds since CS deal
Published: Thursday, Nov 9th 2023, 09:00
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The major bank UBS has issued the first so-called AT1 bonds since the CS takeover. The issue in two tranches has a volume of 3.5 billion US dollars, according to a statement on Thursday.
According to the communiqué, both tranches of USD 1.75 billion each bear interest at 9.25 percent. Both are perpetual bonds, whereby the first can be repaid by UBS after five years and the second after ten years.
According to UBS, the bond qualifies as Additional Tier 1 capital under Swiss law. Accordingly, it is also subject to a write-down in the event of a certain emergency ("trigger event" or "viability event"). However, it is also possible that the securities could be converted into shares in such an event - subject to shareholder approval of a minimum volume of conversion capital.
According to a Bloomberg media report from the previous day, the AT1 bond met with enormous demand. The AT1 tranches have been significantly oversubscribed with 15 billion so far, the agency reported on Wednesday evening.
Controversial instrument
AT1 bonds are generally rated as speculative by rating agencies. This is because, apart from equity (such as shares), it is the most "subordinated" instrument: if the bank gets into difficulties, investors are only serviced after all non-subordinated debt instruments (such as Pfandbriefe or "normal" bonds). However, as long as things go well, investors can also earn significantly more than with "normal" bonds, as the interest rate is much higher.
In the CS case, however, the holders of the AT1 bonds even had to rank below the shareholders in the course of the emergency takeover by UBS and suffered a total loss. Unlike the written-off bonds, the CS shares still had a value due to the takeover price of around CHF 3 billion. This reversal of the creditor hierarchy led to heated discussions.
UBS is facing legal trouble due to the declaration of the CS AT1 bonds as worthless in March. By August, the Federal Administrative Court had received complaints against the Finma decision on behalf of around 3,000 complainants.
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