September 29, 2017 / 10:39 AM / a year ago

Italy's Banca Carige sets bond conversion terms in step to raise capital

MILAN (Reuters) - Troubled Italian lender Banca Carige (CRGI.MI) set the terms of an offer to convert its junior debt into senior bonds on Friday as part of efforts to raise capital by the end of the year.

After Rome rescued larger rival Monte dei Paschi di Siena (BMPS.MI) and liquidated two failing regional banks this year, Carige came into focus as the last large Italian bank still in difficulty following a deep recession.

The European Central Bank has given Italy’s ninth-largest bank until the end of December to strengthen its capital.

Carige is offering to convert a 160 million euro (141.21 million pounds) Tier 1 bond at 30 percent of its nominal value and three Tier 2 bonds worth a combined 350 million euros at 70 percent

Bondholders have seven working days to take up the offer at those prices. They will receive in exchange a five-year senior bond carrying a 5 percent coupon.

Senior bonds take priority over junior bonds in the event of liquidation.

A Milan-based trader said the conversion prices were slightly above expectations and had pushed up the market value of the bonds towards the swap levels, especially the Tier 2s which are more liquid.

Insurers Assicurazioni Generali (GASI.MI) and Unipol (UNPI.MI) together with bank Intesa Sanpaolo (ISP.MI) together hold 205 million euros worth of Carige’s junior debt.

A source close to Unipol said on Friday the company was planning to take up the exchange offer.

Generali, which holds half of the Tier 1 bond, and Intesa, which holds 50 million euros worth of Carige’s debt, have yet to express a position.

Carige has said that its business could be at risk if its capital raising plan, which includes a new share issue for up to 560 million euros and asset disposals in addition to the debt swap, does not go through.

Heavily exposed to the local economy, Carige has lost nearly 2 billion euros in the past four years, hit by loan writedowns and slumping revenues.

It aims to reap around 200 million euros from the swap thanks to a capital gain generated by the below-par prices at which it is offering to convert the bonds.

The Milan trader said some hedge funds were also among holders of the bank’s subordinated debt.

“The general impression is that the offer may go through, but it’s only one leg of their plan,” he said.

Reporting by Valentina Za and Andrea Mandala; Editing by Adrian Croft, Greg Mahlich

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