Fri Jul 25, 2014 4:59am EDT
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By Aimee Donnellan
LONDON, July 25 (IFR) - Virgin Money is poised to enter the debt capital markets for the first time ahead of a long rumoured IPO, and is looking to raise £160m in deeply subordinated debt, according to a market source.
The UK lender is seeking to bolster its balance sheet with an unrated Additional Tier 1 bond which will sit just above the Virgin Money's equity.
UK financials institutions have been among the biggest users of the Additional Tier 1 market in 2014, taking advantage of the strong market backdrop to raise junior debt at competitive levels.
Bank of America Merrill Lynch is arranging the transaction, according to the source. Officials at the US bank were unavailable for comment.
"Virgin Money like all of Europe's banks needs to raise capital but this is a quite a surprise to the market," said a syndicate banker.
"Looking at the size of the deal I wouldn't be surprised if they just had one buyer," said another syndicate banker.
Banks across Europe are seeking to boost their balance sheets to meet tough new regulatory requirements via Additional Tier 1 issuance which is cheaper to raise than equity.
Under the terms of the perpetual non-call five-year deal, bondholders can be converted into equity if the group's Common Equity Tier 1 ratio falls below 7% on a fully loaded basis.
According to Virgin Money's 2013 results released in March of this year, the bank has a Common Equity Tier 1 ratio of 15.3% and leverage ratio 3.7%, on a Basel III basis.
Virgin Money in March reported its first profit since it acquired failed lender Northern Rock in 2012 and has been rumoured to be looking at a potential IPO.
The banking arm of Richard Branson's Virgin group made an underlying profit of £53.4m in 2013. The strong growth stemmed from its take over of Northern Rock, the group said in trading update.
Virgin Money, which agreed to buy nationalised Northern Rock for an initial fee of £747m in November 2011, must pay more to Britain's finance ministry if it floats the business before November 2016, under the terms of that deal.
The bank was Britain's third-biggest net mortgage lender last year behind Barclays and Nationwide. (Reporting by Aimee Donnellan; editing by Alex Chambers, Helene Durand)
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