One junior bond issued by a Credit Suisse entity a decade ago has emerged unscathed from a wipeout of the lender’s riskiest notes as part of UBS Group AG’s takeover.
(Bloomberg) — One junior bond issued by a Credit Suisse entity a decade ago has emerged unscathed from a wipeout of the lender’s riskiest notes as part of UBS Group AG’s takeover.
The $2.5 billion note due later this year is a rare Tier 2 contingent convertible bond, with some features similar to the 16 billion Swiss francs ($17.2 billion) of risky bonds that the lender is writing down. However, due to quirks when Swiss banks adopted post-financial crisis capital instruments, the note is counted as Tier 2 capital instead — a higher-ranking type of debt that typically only takes a hit if a lender is no longer viable.
The Tier 2 bond will not be written down, two people who spoke with the lender told Bloomberg, declining to be identified because the discussions were private.
The bond will “presumably remain an obligation of the enlarged UBS, alongside CS’s senior bonds,” said Simon Adamson, head of global financials research at CreditSights. The bond has “an unusual structure,” and characteristics in common with both plain vanilla Tier 2 and with AT1 bonds, he wrote in a note.
Spokespeople at Credit Suisse, UBS and Swiss financial regulator FINMA didn’t respond to requests for comment from Bloomberg on the bond.
UBS chief executive officer Ralph Hamers said “we’ll have to come back to you” when asked by an analyst on a Sunday night investor call about whether the Tier 2 bond would be written down or not.
For now, it seems as if traders are confident that the bond won’t be included in any writedown. It is currently indicated at around 75 cents on the dollar, up from about 50 at the start of trading in London. Meanwhile, AT1 bonds are quoted at around 2 cents on the euro, according to CBBT pricing compiled by Bloomberg.
(Updates with information from people familiar with matter.)
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