UniCredit buys back €1.86bn of sub debt

UniCredit announced on Monday that the take-up rate on a sub debt buy-back was around 33% as the rally in Italian bank capital instruments made the offer that began on January 24 less attractive to investors.

UniCredit was targeting a total of €5.6bn equivalent of hybrid Tier 1 and Upper Tier 2 notes at a deep discount to par, of which it said it would buy back a maximum of €3bn.

UniCredit was offering to buy the Tier 1 bonds between 50% and 81% of par; the first call dates on the issues are between October 2011 and December 2020.

Meanwhile, it was offering between 75% and 87% of par for the Upper Tier 2s, which are due in 2016 and 2018. The premium offered by the bank was between eight and 15 points on the Tier 1 and between three and eight points on the Upper Tier 2.

However, since the announcement, Italian sub debt spreads have rallied substantially, driven by the strong market backdrop and the announcement by the Bank of Italy last week that it was easing rules for hybrid buy-backs. According to a bank on the deal, Italian FIG hybrids rallied by around 12 to 20 points during the offer which began on January 24.

“The premium levels were deemed fair by investors. However, a number of investors were unwilling to take losses below their initial par price entry point, particularly in the light of UniCredit’s recently completed rights issue and the overall improvement in market sentiment,” one of the lead managers on the deal said. Bank of America Merrill Lynch, Mediobanca, UBS and UniCredit were handling the trade.

In total, €1.86bn was submitted by investors, split between €1.505bn of hybrid Tier 1 and €354m of dated Upper Tier 2.