UBS Group AG raised $1.5 billion of additional Tier 1 capital in US dollars, its first foray into the market since Swiss suspended plans to tighten rules on the riskiest type of bank debt.
According to a person familiar with the matter who asked to remain anonymous, the lender priced the AT1 bonds, with an early call option at the end of 2032, at a yield of 6.875%, compared with revised guidance of 7.25% to 7.375%, which has been reduced from an initial 7.5%.
This bond is the first since the Swiss government decided at the end of April not to proceed with adjustments to the AT1 regulations for the time being, a decision that was seen as a victory for bondholders. Lawmakers had proposed stricter tests on whether Swiss banks could pay the interest on the bonds and when they could replace them with new issues.
“The current situation is unexpected,” he wrote Simon AdamsonCFO of CreditSightsin a note to its clients, citing information that the bank had published at the end of April, in which it claimed to have completed its AT1 bond issuance plan for this year. The credit analysis firm improved its recommendation on AT1 bonds from UBS after the decision of the Swiss authorities.
A representative of UBS declined to comment.
UBS is one of the largest issuers of AT1 bonds. Its last AT1 capital raising in US dollars came in January, when analysts at CreditSights pointed out that regulatory uncertainty and legal could negatively affect the entity’s margins. A month later, it turned to the Australian dollar market, taking advantage of the void left by the local regulator’s decision to phase out this type of debt for national banks.
According to a multi-currency index prepared by Bloombergspreads in the AT1 market have narrowed to just 15 basis points from the record reached earlier this year. Demand has been so strong lately that some banks have been setting their cost of capital for a decade, an unusually long period.
