TwentyFour AM: Importance of UBS deal for AT1 market 'cannot be overstated'
The instruments were sold in two tranches that could be redeemed in either five or ten years, with an initial price talk marketed at 10% for a five-year call and 10.125% for a 10-year call.
On Wednesday (8 November), the Swiss bank started selling its first AT1 bonds since taking over Credit Suisse in March, when $17bn worth of the instruments were wiped out as part of the rescue deal, a move that sparked controversy across European debt markets.
The instruments were sold in two tranches that could be redeemed in either five or ten years, with an initial price talk marketed at 10% for a five-year call and 10.125% for a 10-year call.
UBS offers first AT1 bonds since Credit Suisse takeover
According to Lichwa, the initial pricing implied about 550bps pick-up in spread over treasuries for the five-year and 560bps for the 10-year tranche. The bonds also received ratings of Baa3/BB/BBB- from Moody's, S&P and Fitch, respectively.
By early afternoon on Tuesday, initial price talk had already been revised down to 9.625% for the five-year and 9.75% for the 10-year tranche. At that point, the books stood at $26bn, but continued to swell to over $36bn at the close, he noted.
Final pricing was cut further, landing at 9.25% for both deals, which amounted to $3.5bn of new issuance, Lichwa said, noting that the final pricing still implies a «healthy margin» of about 470bps over five- and 10-year treasuries for what is an investment grade rated bond.
«The importance of this deal for the AT1 market, and how well the execution has gone, cannot be overstated in our view, while the Swiss authorities must also be breathing a sigh of relief given the cloud hanging over its regulatory regime,» he said.
What are AT1 bonds and why is Credit
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