UBS targets US investors for "CoCo" Tier 2 bond
NEW YORK, Aug 8 (IFR) - UBS is planning to issue the first European Tier 2 transaction offered in the US, where bondholders could see their investment written down to zero if the Swiss bank runs into trouble.
Investors and bankers confirmed that the Swiss Bank was roadshowing a low-trigger contingent capital (CoCo) Tier 2 offering in the US.
UBS would not comment, but market sources said the Swiss bank was gauging US investor interest in a 10-year bullet subordinated issue, which would see its principal entirely written down if UBS's Tier 1 level breaches the 5% threshold.
Sources heard the bank was feeling out interest at a coupon of around 7.5%, in line with the Reg-S dollar denominated low-trigger Tier 2 it did in February that was primarily sold to Asian investors and not offered in the US.
This latest potential transaction would also mirror structually that USD2bn 10-year non-call five deal from February which was mostly sold into private banks and retail investors.
In February's issue, the bonds can be written down permanently if the bank's common equity Tier 1 ratio falls below 5% or is considered non-viable. On a fully applied basis, UBS Tier 1 ratio under Basel 3 stands at 8.8% according to its second quarter results.
A non-viability event is described as the point at which without such write-down or extraordinary support to improve the bank's adequacy, the bank would otherwise be bankrupt, insolvent or unable to pay its debts, as determined by the Swiss regulator.
Institutional investors have been wary of the non-viability concept as some have feared it would give regulators wide powers of intervention.
The pending deal would be registered as a so-called 3a2 deal, which falls short of full public SEC registration but allows inclusion in bond indexes.
UBS will be looking to tap institutional investors not only starved of yield but also additionally burdened by a wall of money coming back into their funds as US banks redeem Trust Preferred Securities that will lose their tier 1 status next year.
In spite of the noise around European banks of late, including UBS's own trading losses and poor earnings, some investors and bankers believe the deal would find interest.
"With the way the market is looking for yield, I have to think a deal like that would do very well," said one debt capital markets observer.
"UBS's senior unsecured paper trades well, notwithstanding all the challenges around that name and European banks generally," the banker added. "The Swiss regulators are among the toughest in the world and the view is that the regulator would intervene before a UBS ever got to that (5%) stage".
Under the Swiss finish, the country's large banks must have a 19% total capital ratio by 2019, divided into 10% of common equity Tier 1, 3% of high-trigger and 6% of low-trigger contingent capital. (Reporting by Danielle Robinson, writing by Alex Chambers; editing by Sudip Roy)
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