Thu Mar 27, 2014 5:17am EDT
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By Aimee Donnellan
LONDON, March 27 (IFR) - UniCredit will become the latest bank to issue a deeply subordinated issue later on Thursday as it seeks to bolster its balance sheet and meet new regulatory requirements.
The Italian lender joins the likes of Banco Santander, Nationwide Building Society and Danske Bank, which have all issued Additional Tier 1 debt in recent weeks, making the most of investors' strong appetite for these securities that expose bondholders to the potential for big losses.
The borrower is testing investor interest for Italy's first Additional Tier 1 bond at 8.25% area, having already marketed the deal in the low 8% range in Asia, according to a lead manager.
The Italian lender is planning to price the benchmark-sized perpetual non-call 10-year US dollar issue later today via Citigroup, HSBC, Societe Generale, UBS and UniCredit's own investment banking unit acting.
The transaction is expected to be rated BB- by Fitch and will write down temporarily if UniCredit's Common Equity Tier 1 ratio falls below 5.125%.
UniCredit has got in ahead of Societe Generale, which had to put a euro Additional Tier 1 issue on hold on Wednesday ahead of a rating announcement. Fitch subsequently put the French bank's single A rating on negative outlook.
UniCredit delayed its high profile capital transaction by two weeks, according to sources, having posted a loss of EUR14bn due to huge writedowns on bad loans and past acquisitions as it moved to clean up its balance sheet ahead of an industry-wide health check by the European Central Bank.
Unlike issuance from the Spanish banks, which converts into equity if the bank breaches a 5.125% Common Equity Tier 1 ratio, UniCredit will have a temporary write-down mechanism, meaning that investors could see their holdings recover if the bank gets back on its feet.
UniCredit's fully-loaded Basel III Common Equity Tier 1 capital adequacy ratio, a closely-watched measure of a bank's financial strength, stood at 9.4% of risk-weighted assets at the end of 2013.
French banks have favoured the structure, with both Societe Generale and Credit Agricole issuing these deeply subordinated bonds, although the latter chose a higher trigger. (Reporting by Aimee Donnellan, Editing by Helene Durand, Julian Baker)
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