UBS has confirmed to CNBC that they are offering Additional Tier 1 securities; however, they have declined to go into details of the contracts and have said that they will provide further information upon completion of the offering. The recent erasure of $17 billion of Credit Suisse AT1 bonds as part of the rescue deal negotiated by Swiss authorities in March has caused an uproar among bondholders.
UBS on Wednesday initiated the selling of Additional Tier 1 (AT1) bonds after concluding the takeover of Credit Suisse. Two U.S. dollar denominated AT1 bonds, a noncall five-year offering with a yield of 10% and a noncall 10-year offering with a yield of 10.125%, were being marketed by LSEG news service IFR. These noncall bonds are only paid out when they mature. UBS confirmed to CNBC that it is issuing AT1 securities, but didn't give details on the contracts. Details on the offering will be provided once it is completed. The wiping out of Credit Suisse AT1 bonds, worth roughly $17 billion, due to the government-sanctioned rescue stirred up controversy among bondholders and continues to be a legal incident with the Swiss government and regulator being challenged. AT1 bonds are seen as risky junior debt instruments that are generally bought by institutional investors. Such bonds were introduced post-2008 financial crisis in a bid to stop taxpayers from getting involved in risk and to increase the capital held by financial institutions to forestall crises.
Fitch rated the new AT1 notes of UBS Group at BBB, four grades lower than the overall viability rating of A. This downgrade takes into account the two-level severity of losses due to the deep subordination of the notes and the increased risk of non-performance. According to the ratings agency, the notes have a permanent write-down mechanism, yet it may be replaced by an equity conversion mechanism upon approval at UBS Group AG's 2024 AGM, to match the standards of other European markets. The conversion feature would mean, if the AGM gives the green light, that if the common equity Tier 1 (CET1) ratio falls below 7%, or FINMA declares a viability event, the notes will be converted into pre-defined volumes of the company's share capital.
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