UBS Group AG (NYSE:UBS) has started selling ‘Additional Tier 1’ bonds again for the first time since its merger with Credit Suisse Group AG (NYSE:CS) caused the bond market to flail.
The demand for the newly created debt instruments could signal renewed investor confidence after the Swiss bank’s merger with Credit Suisse sent the market for debt into a spiral when a raft of bonds were written down.
When UBS agreed to buy Credit Suisse in March, US$17 billion of Credit Suisse’s AT1 bonds were effectively annulled and their removal from the market caused bond yields to rise.
This led market observers to worry that a tool that was invented to bolster banks if their capital was below thresholds was under severe threat.
Following the global financial crisis, the subordinated bank capital tier was introduced to create a buffer to ensure banks had enough capital on their balance sheets.
The latest reinvigoration of AT1 bonds by UBS represents the first time that the bank has sold debt instruments of this tier that convert into equity if capital levels at the bank drop below agreed thresholds.
Last month, the bank said that it would redeem an outstanding AT1 instrument issued in November 2018 in Singaporean dollars on the SIX Swiss Exchange.
According to rating agency Standard & Poor’s, the newly issued debt notes could convert in the instance of a so-called viability event, such as a cash injection of government backing.
S&P has labelled the bonds with a ‘BB’ rating. The newly issued bonds from UBS are US dollar securities that can be redeemed in five to 10 years.
They have a yield of about 10%, or 10.125% for the longer-term debt instruments.