Barclays unearths billions of euro AT1 demand

By Helene Durand

Thu Dec 5, 2013 12:03pm EST

LONDON, Dec 5 (IFR) - Barclays paved the way for other European banks looking to raise Additional Tier 1 in the single currency this week when it priced a heavily oversubscribed EUR1bn perpetual non-call seven-year issue.

Up until now, banks have relied heavily on the US dollar market to raise capital in this format, as it has offered the deepest pool of liquidity and question marks remained around how deep the demand would be in the euro market.

Banco Popular Espanol is the only issuer to have gone to euros, printing a EUR500m perpetual non-call five-year that attracted a book in excess of EUR1.5bn, although the issuer had to rely heavily on hedge funds to get the deal away.

For Barclays, however, the book on the trade reached EUR12bn, laying to rest any doubts about investor demand.

"We are seeing a gradual increase in the acceptance of this asset class across different investor types," said Daniel Fairclough, managing director, UK financial institutions, at Barclays.

"As is inevitable with any new product, this has taken time, but it's pleasing to see strong evidence of European real money involvement."

Fairclough added that being able to offer loss absorption through equity conversion had helped bring European investors to this market.

Barclays was keen to capitalise on the momentum of its USD2bn perpetual non-call five-year Additional Tier 1 trade priced in November.

"The success of the deal justifies our decision to tap into the momentum we had built during the extensive global roadshow completed for the dollar trade," said Steve Penketh, managing director, group treasury at Barclays.

Because it had explained all the various features of the deal for the dollar trade, Barclays was able to undertake the euro deal without having to conduct an extensive roadshow.

Having gone out at mid-to-low 8% area, guidance was refined to 8%-8.125%, for final pricing at 8%.

This was 25bp tighter that the dollar on a coupon basis, although this does not take into account the cross-currency swap and the fact that the dollar had performed very well in the secondary market. However, the call date on the euro transaction is two years later.

The strong performance of the new euro trade led market participants to say that Barclays had been very generous.

"They left a lot on the table and this traded up by three points, which tells you that it was cheap," said a banker.

Another said that while it was clear it was a strategic deal, the rally was substantial. "Having said that, it's a great deal for the market."

Barclays' Penketh said the bank's strategy had helped to support a still-developing and critical asset class for the European banking sector.

"Trying to shave an eighth off here or there on pricing misses the point. In a developing asset class, there is always an element of price discovery. Fair value is the target - the right calibrated balance for issuers and investors. Being too aggressive on pricing risks stifling the asset class before it gets off the ground."

Given that Barclays has said it needs to raise GBP6.6bn in the format, it is not surprising that it wanted to keep the investor base sweet.

This deal fulfils Barclays' objective of raising up to GBP2bn of CRDIV-qualifying Additional Tier 1 securities with a 7% fully loaded Core Equity Tier 1 ratio trigger, announced as part of its leverage plan on July 30 2013. The deal converts into equity if the bank breaches that ratio.

The 7% fully loaded trigger excludes Barclays' GBP7.6bn loss-absorbing cushion of goodwill capital. Just like Barclays' dollar Additional Tier 1 issue, coupons are non-cumulative, deferrable and there are no dividend pushers or stoppers.

The firm estimates that the capital cushion that protects investors from potentially having coupon payments suspended will shrink from GBP15bn in 2016 to GBP7bn in 2019 as higher capital requirements kick in.

This is because the level at which Barclays becomes subject to additional restrictions on making coupon payments will be raised from 7% CET1 to 9%.

Fund managers took 61%, hedge funds 21%, private banks 9%, insurance/pension funds 5%, banks 2% and others 2%.

The UK/Ireland accounted for 49%, the US 13%, Asia 11%, France/Benelux 8%, Switzerland 6%, Southern Europe 6%, the Nordics 5% and Germany/Austria 2%.

Barclays was sole bookrunner, while Bank of America Merrill Lynch, BNP Paribas, Commerzbank, Credit Agricole CIB, Credit Suisse and Morgan Stanley were joint leads. The transaction is rated B+/BB+ by S&P/Fitch.

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CORRECTED-UPDATE 3-A drop in the bucket? Christie's appraises Detroit's art

Thu Dec 5, 2013 3:30pm EST

(In Dec. 4 story, removes reference to law professor Michael Bennett also being a bankruptcy expert, paragraph 7)

By Joseph Lichterman

DETROIT Dec 4 (Reuters) - The auction house Christie's put a price tag on one of Detroit's highest-profile assets - the city's share of the Detroit Institute of Arts collection - but the masterworks might not be worth enough to help the city out of its financial crisis.

Christie's said on Wednesday that nearly 3,000 works controlled by the city are worth between $452 million and $866 million. The appraisal surprised some experts who thought the works, which include masterpieces by van Gogh and Matisse, might be worth more.

The finding by Christie's, hired to place a value on art treasures that have become a point of heated debate over the past few months in the city and its suburbs, could become a contested element of the Detroit bankruptcy if the city tries to "monetize" its masterpieces. The report puts a range of value on 2,781 works owned or partially owned by the city.

Christie's also proposed five alternatives to an outright sale of the art, including using the collection as collateral for a loan to the city.

The holdings represent only about 5 percent of the total number of art pieces in DIA's collection. But Christie's, which sought to appraise the most valuable pieces in the city-owned collection, stated that 11 of those pieces account for 75 percent of the total value of all appraised pieces.

With the finding Tuesday that Detroit is bankrupt under Chapter 9 of the federal bankruptcy code, it is possible the city may seek to monetize some of the artwork. With debts totaling $18.5 billion, Detroit may need to sell all or part of the DIA collection as part of its plan to emerge from bankruptcy.

But the relatively low price range Christie's assigned to the collection could make the art a less vital asset than some observers had expected, said Michael Bennett, a law professor at Northeastern University who has written about the plight of the DIA.

"If Christie's is saying that we'd be looking at something less than $1 billion, and perhaps something significantly less than $1 billion, in proceeds from a sale, clearly that's not even a drop in the bucket if you bear in mind the magnitude of the financial deficit of the city," Bennett said.

Christie's report did not specify the works that were appraised, but some of the most best-known works owned by the city include an 1887 self-portrait by Vincent van Gogh and Henri Matisse's "The Window," an oil painting of a turqouise-shaded drawing room.

Another highlight: a rare 1566 painting, "The Wedding Dance," by Flemish painter Pieter Bruegel the Elder, that depicts a joyous wedding party.

In its report to the city, Christie's proposed five potential approaches to monetize the collection without having to sell it. Options including use of city-owned works as collateral; long-term leases; and sales to philanthropists who might loan pieces back to the city could be used in combination to raise funds for the cash-strapped city, the auction house said.

"The current robust global art market coupled with the fact that the city-owned collection contains some high-quality and valuable works, suggest this could be an effective financing arrangement," Christie's America President Doug Woodham said about the proposed use of the collection as collateral for a line of credit.

The city could raise money from a traveling exhibition of select DIA pieces and might create a "masterpiece trust," selling shares in city-owned works to other museums, Christie's said.

The DIA declined to comment on the appraisal but said in a statement that it "continues to maintain its position that the museum collection is a cultural resource, not a municipal asset." The museum also said that if the collection were threatened, it would be "committed to taking appropriate action to preserve this cultural birthright for future generations.

Bill Nowling, a spokesman for Emergency Manager Kevyn Orr, did not immediately respond to a request for comment.

APPRAISAL ONGOING

With Wednesday's report, Christie's has completed two of three phases of appraisal assigned to it when Orr retained the auction house in August: valuing 319 city-owned works on view in the museum's galleries, then appraising pieces in storage estimated to be worth more than $50,000.

The third phase involves lesser works in storage and should be completed later this month.

Christie's sought to appraise the DIA art at fair market value, the price at which a piece would be sold in an appropriate market.

The market for fine art has sizzled this year. Francis Bacon's "Three Studies of Lucian Freud" fetched a record-breaking $142 million in a Christie's sale last month. The Nov. 13 auction in New York brought in $691 million, the highest in art market history, and prompted talk of a bubble.

'DELAYS THE INEVITABLE'

Detroit's options for the DIA could be limited by resistance from surrounding suburbs. In 2012, voters in Detroit and the three suburban counties voted to increase property taxes to help cover the DIA's operating expenses, and suburban officials have threatened to quit sending tax proceeds, which provide about two-thirds of the museum's budget of about $35 million, if DIA art is sold.

But Orr has maintained that the city must value all of the city's assets, including the art. He also has said the city is looking at other assets to monetize, including the Detroit Water and Sewerage Department, Coleman A. Young International Airport or other city-owned parking lots or land.

U.S. Bankruptcy Judge Steven Rhodes in his ruling Tuesday warned that asset sales will not provide a solution to Detroit's long-term financial problems.

"A one-time infusion of cash, whether from an asset sale or borrowing, delays the inevitable," he said.

A group of the city's largest creditors last month asked Rhodes to approve an independent valuation of the DIA's collection. Also last month, a federal judge acting as chief mediator in the bankruptcy case put forward a proposal that a group of non-profit foundations could create a fund to protect the DIA's city-owned art.

(Additional reporting by Bernie Woodall in Detroit and Patricia Reaney in New York; Editing by Bernadette Baum and Douglas Royalty)

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UPDATE 1-Southwest, Virgin win waiver to purchase LaGuardia slots

By Karen Jacobs and Diane Bartz

ATLANTA/WASHINGTON Thu Dec 5, 2013 7:34pm EST

ATLANTA/WASHINGTON Dec 5 (Reuters) - Southwest Airlines is purchasing 22 of the 34 takeoff and landing slots at New York's LaGuardia Airport that American Airlines has given up in return for government approval of its merger with US Airways Group Inc.

Virgin America plans to buy the remaining 12.

US Airways and American agreed to give up dozens of airport slots to settle a lawsuit brought by the Department of Justice that sought to block the airlines from merging to create the world's largest carrier.

Southwest confirmed the purchase in a company statement on Thursday, while the Federal Aviation Administration said in a waiver that Virgin America had permission to buy the 12 slots.

"We are pleased the U.S. Department of Justice approved our agreement with American Airlines to acquire these slots at LaGuardia," Bob Jordan, Southwest's executive vice president, said in a statement. "This is terrific news for low-fare customers who want greater access to New York City."

Mike Trevino, American Airlines spokesman, said: "American and the other carriers have agreed to transition the operation of the slots over time in order to minimize customer disruption."

Terms of the sales are not known, and Virgin America said its deal was not final.

"We will release more details on our network plans in the weeks ahead - after the process is finalized," Virgin America spokesman Madhu Unnikrishnan said in a statement.

In the deal with the Justice Department, the merger partners also agreed to give up 52 pairs of slots at Reagan National Airport, just outside Washington, D.C. The merger is due to close Dec. 9.

JetBlue has been expected to be interested in the slots at Reagan National that it is currently leasing from American. Southwest added it also looks forward to bidding on the Reagan National slots.

US Airways declined to comment.

American and US Airways announced in February that they planned to merge to form the world's largest airline. The Justice Department sued to stop the deal, saying it would lead to higher fares. The sides announced a settlement on Nov. 12 after the airlines agreed to a long list of divestitures.

In addition to slot sales, the airlines agreed to give up gates at five other major airports: Boston Logan International Airport, Chicago O'Hare International Airport, Dallas Love Field, Los Angeles International Airport and Miami International Airport.

The Justice Department argued that the slot and gate sales would give low-cost competitors better access to some of the country's busiest airports. Analysts, however, said that a relatively small number of flights would be affected and any change would be incremental.

The Justice Department selects which airlines are eligible to buy the assets that the airlines must sell. Large carriers Delta Air Lines and United are believed to have been excluded from the sale.

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RLPC: American Airlines launches repricing effort

By Natalie Wright

NEW YORK Wed Dec 4, 2013 3:37pm EST

NEW YORK Dec 4 (Reuters) - American Airlines is seeking to reprice its $1.9 billion exit financing loan via lead arranger Deutsche Bank, sources told Thomson Reuters LPC. The company aims to reprice the loan to a spread of LIB+300-325, with a 1 percent Libor floor.

The exit loan is currently priced at a spread of LIB+375 with a 1 percent Libor floor.

The repriced loan is expected to mature June 27, 2019, in line with the existing exit loan. The repriced loan will reset 101 soft call protection for six months and include financial covenants requiring $2.0 billion of minimum liquidity and 1.6 times collateral coverage.

Although the company is trying to reduce the loan's coupon and save interest costs, American is adding US Airways Group Inc and US Airways Inc as guarantors backing the new loan, thereby potentially enhancing the loan's credit quality.

AMR Corporation, the parent company of American Airlines, is guarantor on the current loan, but as American prepares to close its merger with US Airways as part of the company's bankruptcy exit, American is including US Airways as a backer of the loan.

Lenders are asked to commit to the deal by 5 p.m. December 11, with the closing and funding expected on December 27.

After the merger was challenged by the U.S. Department of Justice in August, American Airlines and US Airways agreed to divest certain plane slots as part of an anti-trust settlement reached last month.

U.S. Bankruptcy Judge Sean Lane gave American and AMR Corporation the green light to leave bankruptcy last week.

In July, American priced an $850 million add-on loan to its existing $1.05 billion debtor-in-possession loan priced the previous month, taking the total size of the borrowing to $1.9 billion.

American Airlines declined to comment. US Airways and Deutsche Bank did not return calls for comment by press time.

Additional reporting by Billy Cheung.

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REFILE-UPDATE 3-A drop in the bucket? Christie's appraises Detroit's art

Wed Dec 4, 2013 6:15pm EST

By Joseph Lichterman

DETROIT Dec 4 (Reuters) - The auction house Christie's put a price tag on one of Detroit's highest-profile assets - the city's share of the Detroit Institute of Arts collection - but the masterworks might not be worth enough to help the city out of its financial crisis.

Christie's said on Wednesday that nearly 3,000 works controlled by the city are worth between $452 million and $866 million. The appraisal surprised some experts who thought the works, which include masterpieces by van Gogh and Matisse, might be worth more.

The finding by Christie's, hired to place a value on art treasures that have become a point of heated debate over the past few months in the city and its suburbs, could become a contested element of the Detroit bankruptcy if the city tries to "monetize" its masterpieces. The report puts a range of value on 2,781 works owned or partially owned by the city.

Christie's also proposed five alternatives to an outright sale of the art, including using the collection as collateral for a loan to the city.

The holdings represent only about 5 percent of the total number of art pieces in DIA's collection. But Christie's, which sought to appraise the most valuable pieces in the city-owned collection, stated that 11 of those pieces account for 75 percent of the total value of all appraised pieces.

With the finding Tuesday that Detroit is bankrupt under Chapter 9 of the federal bankruptcy code, it is possible the city may seek to monetize some of the artwork. With debts totaling $18.5 billion, Detroit may need to sell all or part of the DIA collection as part of its plan to emerge from bankruptcy.

But the relatively low price range Christie's assigned to the collection could make the art a less vital asset than some observers had expected, said Michael Bennett, a law professor at Northeastern University and a bankruptcy expert who has written about the plight of the DIA.

"If Christie's is saying that we'd be looking at something less than $1 billion, and perhaps something significantly less than $1 billion, in proceeds from a sale, clearly that's not even a drop in the bucket if you bear in mind the magnitude of the financial deficit of the city," Bennett said.

Christie's report did not specify the works that were appraised, but some of the most best-known works owned by the city include an 1887 self-portrait by Vincent van Gogh and Henri Matisse's "The Window," an oil painting of a turqouise-shaded drawing room.

Another highlight: a rare 1566 painting, "The Wedding Dance," by Flemish painter Pieter Bruegel the Elder, that depicts a joyous wedding party.

In its report to the city, Christie's proposed five potential approaches to monetize the collection without having to sell it. Options including use of city-owned works as collateral; long-term leases; and sales to philanthropists who might loan pieces back to the city could be used in combination to raise funds for the cash-strapped city, the auction house said.

"The current robust global art market coupled with the fact that the city-owned collection contains some high-quality and valuable works, suggest this could be an effective financing arrangement," Christie's America President Doug Woodham said about the proposed use of the collection as collateral for a line of credit.

The city could raise money from a traveling exhibition of select DIA pieces and might create a "masterpiece trust," selling shares in city-owned works to other museums, Christie's said.

The DIA declined to comment on the appraisal but said in a statement that it "continues to maintain its position that the museum collection is a cultural resource, not a municipal asset." The museum also said that if the collection were threatened, it would be "committed to taking appropriate action to preserve this cultural birthright for future generations.

Bill Nowling, a spokesman for Emergency Manager Kevyn Orr, did not immediately respond to a request for comment.

APPRAISAL ONGOING

With Wednesday's report, Christie's has completed two of three phases of appraisal assigned to it when Orr retained the auction house in August: valuing 319 city-owned works on view in the museum's galleries, then appraising pieces in storage estimated to be worth more than $50,000.

The third phase involves lesser works in storage and should be completed later this month.

Christie's sought to appraise the DIA art at fair market value, the price at which a piece would be sold in an appropriate market.

The market for fine art has sizzled this year. Francis Bacon's "Three Studies of Lucian Freud" fetched a record-breaking $142 million in a Christie's sale last month. The Nov. 13 auction in New York brought in $691 million, the highest in art market history, and prompted talk of a bubble.

'DELAYS THE INEVITABLE'

Detroit's options for the DIA could be limited by resistance from surrounding suburbs. In 2012, voters in Detroit and the three suburban counties voted to increase property taxes to help cover the DIA's operating expenses, and suburban officials have threatened to quit sending tax proceeds, which provide about two-thirds of the museum's budget of about $35 million, if DIA art is sold.

But Orr has maintained that the city must value all of the city's assets, including the art. He also has said the city is looking at other assets to monetize, including the Detroit Water and Sewerage Department, Coleman A. Young International Airport or other city-owned parking lots or land.

U.S. Bankruptcy Judge Steven Rhodes in his ruling Tuesday warned that asset sales will not provide a solution to Detroit's long-term financial problems.

"A one-time infusion of cash, whether from an asset sale or borrowing, delays the inevitable," he said.

A group of the city's largest creditors last month asked Rhodes to approve an independent valuation of the DIA's collection. Also last month, a federal judge acting as chief mediator in the bankruptcy case put forward a proposal that a group of non-profit foundations could create a fund to protect the DIA's city-owned art.

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Objectors in Detroit bankruptcy ask to appeal directly to circuit court

DETROIT Wed Dec 4, 2013 10:46pm EST

DETROIT Dec 4 (Reuters) - Organizations that objected to Detroit's bankruptcy separately asked the U.S. judge overseeing the case late on Wednesday to allow an appeal of the case to go directly to the U.S. 6th Circuit Court of Appeals.

Groups led by Detroit's largest union - Michigan Council 25 of the American Federation of State, County and Municipal Employees - and the city's two pension funds filed requests with the bankruptcy court to bypass the U.S. District Court for the Eastern District of Michigan and go directly to the appeals court.

"The Sixth Circuit eventually will decide whether the City is eligible to be a Chapter 9 debtor," attorneys representing the pension funds wrote in their motion. "The only question is timing. Because time is manifestly of the essence, this Court should certify its eligibility ruling for an immediate appeal to the Sixth Circuit."

AFSCME in another filing had previously asked U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, to allow an appeal directly to the 6th Circuit, but in his ruling on Tuesday Rhodes said any motions for a direct appeal must be separately submitted to the bankruptcy court.

Proceedings will continue in the bankruptcy court even as the case is appealed. Detroit Emergency Manager Kevyn Orr said Tuesday that the city plans to submit its restructuring plan to the court for approval by early January.

Rhodes on Tuesday said Detroit was eligible for bankruptcy because it was insolvent and negotiations with its thousands of creditors were not practical. [ID: nL2N0JI1QS]

The judge also said that Detroit could cut pensions as part of its restructuring, turning back an argument from the unions, pension funds and retirees objecting to the bankruptcy by asserting that pensions were protected by the Michigan constitution.

Detroit, with $18.5 billion in debt, is the largest U.S. city ever to go bankrupt. Rhodes on Tuesday declared Detroit eligible in a more than hour-long oral decision. He has yet to issue a written opinion.

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Credit Suisse tests interest for USD CoCo

By Aimee Donnellan

Wed Dec 4, 2013 3:04am EST

LONDON, Dec 4 (IFR) - Credit Suisse is testing investor interest for a US dollar Additional Tier 1 contingent capital (CoCo) bond at 7.75% area, according to a market source.

Credit Suisse is the sole bookrunner on the bond that is perpetual but callable after 10 years. Barclays, ING, Lloyds Bank, Natixis and Wells Fargo are co-lead managers.

Pricing is expected later today. (Reporting by Aimee Donnellan; editing by Alex Chambers)

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PRESS DIGEST- New York Times business news - Dec 4

Wed Dec 4, 2013 12:26am EST

Dec 4 (Reuters) - The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

* In a ruling that could reverberate far beyond Detroit, a federal judge held on Tuesday that this battered city could formally enter bankruptcy and asserted that Detroit's obligation to pay pensions in full was not untouchable. ()

* At a picturesque century-old factory, Count Anton-Wolfgang von Faber-Castell is the eighth in a long line carrying on the family name in the pencil business. Faber-Castell, the largest maker of wood-encased pencils in the world, illustrates how midsize companies - which account for about 60 percent of the country's jobs - are able to stay competitive in the global marketplace. ()

* The FDA allows the sale of some devices to treat small groups of patients without requiring proof that the devices work, or any rigorous study of the medical results. ()

* Testimony to Parliament from the top editor of The Guardian illustrated the aggressive investigative and spying tactics increasingly faced by news organizations. ()

* Newsweek, the struggling weekly magazine that ceased print publication last year, plans to turn the presses back on. The magazine expects to begin a 64-page weekly edition in January or February. ()

* The Illinois legislature on Tuesday ended a day of emotional debate and fierce back-room arm-twisting by passing a deal to shore up the state's debt-engulfed pension system by trimming retiree benefits and increasing state contributions. ()

* Jon Horvath has been positioned as a star witness for federal prosecutors in the insider trading trial of Michael Steinberg, his former boss at SAC Capital Advisors. But under questioning by the defense on Tuesday, Horvath, a former analyst at SAC, acknowledged having some memory lapses, potentially undercutting some of his credibility. ()

* Edward Lampert, the hedge fund manager who serves as Sears Holdings' chief executive, remains struggling retailer Sears' biggest shareholder. But his firm, ESL Partners, has cut the size of its stake, disclosing in a regulatory filing on Tuesday that it now owns 48.4 percent of its shares, down from 55.4 percent. ()

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Barclays mulls bringing CoCos mainstream with indices

By Christopher Whittall

Wed Dec 4, 2013 3:39am EST

LONDON, Dec 4 (IFR) - Barclays is looking at ways of making contingent capital instruments more palatable to fixed income investors, as analysts predict a broader client base will be needed to absorb the billions of euros-worth of CoCo securities that are expected to hit the market in the coming years.

The UK bank spoke to prominent fixed income clients on Monday to gauge interest in including contingent debt in existing benchmark indices or creating a brand new CoCo-only index in an effort to widen the appeal of the instruments.

CoCos' convertible and sub-investment-grade nature means that they have been excluded from fixed income benchmarks. This has proved an obstacle to luring more investors to the asset class, which has relied heavily on retail money and hedge funds so far.

And despite some investment managers setting up dedicated CoCo funds, these have yet to ramp up activity in the Additional Tier 1 space.

Many investment managers have to benchmark their performance against widely referenced industry indices, restricting their investment horizons to these mainstream bonds. Inclusion in such indices consequently tends to boost the liquidity of the underlying securities.

Barclays has been at the forefront of the Additional Tier 1 market as it attempts to boost its capital and leverage ratio - the latter of which languishes at 2.2% currently, well below the Basel III minimum of 3%.

The firm printed a EUR1bn perpetual non-call seven-year Additional Tier 1 deal on Tuesday, having printed a USD2bn five-year callable in November. It is the only bank to have two outstanding benchmark Additional Tier 1 deals, in euros and dollars. The bank declined to comment for this article.

It is understood that around half of the investors Barclays sounded out were averse to including CoCos in pre-existing benchmarks. As a result, it is thought the bank is more likely to develop a separate CoCo index that could be bolted onto core bond indices or be kept separate as a standalone benchmark depending on client preference.

"We haven't seen Additional Tier 1 debt grab hold of the fixed income investor base yet. We've seen a lot of interest from retail investors and hedge funds, but that may become shakier if there is a downturn in the credit cycle," said Alan Bowe, financials credit analyst at JP Morgan.

"2014 should be manageable from an AT1 issuance perspective with the grab for yield, but the asset needs inclusion in benchmarks to ensure longer term growth."

JP Morgan forecasts net AT1 issuance of around EUR11bn in 2014. Even a limited investor base should be able to mop up this supply, but bankers are concerned it may not be sustainable on a longer term horizon.

Focusing on a sample of 25 European banks, JP Morgan estimated there is a net AT1 requirement of EUR75bn to meet Basel III rules.

VESTED INTEREST

There is undoubtedly some enlightened self-interest in Barclays' efforts to expand the appeal of the instruments. According to JP Morgan, Barclays needs to raise EUR7bn in the format, although this should be reduced as a result of its USD1bn and EUR1bn recent issues.

But Barclays is not the only bank with large Additional Tier 1 requirements. According to JP Morgan, Deutsche has to raise almost EUR13bn in the format. Just like Barclays, the German lender is also wrestling with a lowly leverage ratio of 2.3% despite shedding over EUR100bn of assets in the third quarter of this year.

Meanwhile, HSBC is planning to raise USD15bn-USD20bn of Additional Tier 1 capital in the coming years as it seeks to replace old instruments that are losing regulatory capital value .

RBS credit analysts led by Alberto Gallo wrote in a report published on Tuesday that banks with "large balance sheets and low risk-weighted assets will be particularly affected" by higher minimum leverage ratio levels imposed by local regulators, singling out Barclays, Deutsche Bank, UBS and Credit Suisse. The latter is also in the market this week with a perpetual non-call 10-year low-trigger Tier 1 US dollar deal.

In the periphery, banks that have previously completed liability management exercises on legacy sub debt are expected to replenish these instruments while the market is open for all and sundry, Bowe said. (Reporting By Christopher Whittall, Editing by Helene Durand and Philip Wright)

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UPDATE 2-Finnish court agrees Talvivaara restructuring

Fri Nov 29, 2013 9:00am EST

* Parent company given go-ahead for reorganisation

* Court asks for more information on subsidiary

* Shares up 71 pct (Adds analyst comment, background)

By Jussi Rosendahl

HELSINKI, Nov 29 (Reuters) - Finnish nickel miner Talvivaara won court approval on Friday to begin a restructuring process aimed at fending off bankruptcy, sending its shares up 71 percent as investors hoped the undertaking would set the company back on its feet.

Talvivaara, hurt by falling nickel prices and chronic production problems, halted operations earlier this month after failing to raise the funds it needed to keep going.

Espoo district court on Friday said Talvivaara's listed parent company could begin restructuring, but asked for more information about subsidiary Talvivaara Sotkamo Ltd - which includes the actual mining assets - before it would decide whether to include its debt in the restructuring process too.

Chief Financial Officer Saila Miettinen-Lahde said the court's decision was nevertheless an important one given that the parent company had bonds worth more than 300 million euros that it is no longer able to repay and will now be able to renegotiate with investors.

However, she added, bankruptcy could still be a possibility if the company's mining operations were not included in the proceedings.

"I can't speculate on what would happen then, but one should note there is considerable debt in the parent company alone," she told Reuters.

Talvivaara Sotkamo was given three weeks to provide an auditor's statement for the Espoo court.

Shares in the company rose 71 percent, or 3 euro cents, to about 7 cents.

NEED FOR FUNDS

Analysts said Friday's announcement did not remove Talvivaara's need for more capital. The company has said it will have cash in the first quarter of 2014, but needs some of that for the court proceedings.

Talvivaara has tried to negotiate new funding with investors and creditors such as the Finnish state, its biggest owner with 17 percent of the shares, and zinc producer Nyrstar, but so far the talks have failed.

"Uncertainty may have decreased only slightly. They still need more capital and there's a lot of work to be done at the site, so basically we don't have any clarity at all about their future as yet," said analyst Markus Liimatainen from FIM brokerage.

Finland's government has said it will only help bail out the company if private investors participate in at least 50 percent of the deal.

Talvivaara's mine is a major employer in the rural Kainuu region of northeast Finland. Once hailed as a pioneer in cost-efficient mining, it ran into a series of production problems last year, including a toxic leak that pushed up uranium levels in nearby lakes and rivers.

The cost of cleaning up and halting production forced the company to go to shareholders with a cash call in March. It has also suffered from a drop of more than fifth in the price of nickel this year. (Reporting By Jussi Rosendahl; Editing by Sophie Walker)

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