UBS Group AG began selling Additional Tier 1 (AT1) bonds, which were central to the controversy surrounding its emergency rescue of Credit Suisse, for the first time since completing the takeover. The Swiss banking giant is marketing two tranches of U.S. dollar AT1 bonds, including a non-call five-year offering around a 10% yield and a non-call 10-year offering around 10.125%. Non-call bonds only pay out at maturity.
UBS confirmed the offering of additional tier 1 securities to CNBC but did not comment on the details of the contracts, stating that it will provide additional information upon the completion of the offering. The wipeout of $17 billion of Credit Suisse AT1 bonds as part of the rescue deal brokered by Swiss authorities in March caused uproar among bondholders and has led to legal challenges for the Swiss government and regulator.
AT1 bonds are considered a relatively risky form of junior debt and are typically owned by institutional investors. Fitch assigned the new AT1 notes a “BBB” rating, four notches below UBS Group’s overall viability rating of “A,” with two notches for “loss severity given the notes’ deep subordination” and two for “incremental non-performance risk.” The ratings agency also noted that UBS’s new AT1 notes will contain a permanent write-down mechanism at issue.
However, subject to approval by UBS Group AG’s 2024 AGM, the permanent write-down mechanism will be replaced by an equity conversion mechanism, bringing the terms in line with other European markets. The conversion feature would mean that, if approved by the AGM, the notes would be converted into a pre-defined volume of share capital of UBS Group AG if the latter’s common equity Tier 1 (CET1) ratio falls below a 7% trigger, or if a viability event is declared by FINMA (Swiss Financial Market Supervisory Authority).
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