Investors involved in discussions with UBS executives have suggested an Additional Tier 1 deal from the Swiss bank is not imminent after reports emerged of its potential return to the market.
New speculation about UBS' AT1 strategy came as the lender hit the US dollar market with a triple-tranche senior holdco offering on Monday.
The question of when it will make its comeback to the AT1 market has intensified in recent weeks and would be a big moment for the sector after holders of Credit Suisse's AT1s saw their investment controversially written down to zero following its rescue by UBS in March.
The Financial Times reported on Monday that UBS executives held a roadshow after its second-quarter results last month during which it sounded out investors over a potential AT1 issuance. The report also said they discussed changes to the terms of future transactions to make them more palatable to investors, including issuing equity conversion bonds instead of securities with a writedown structure. Credit Suisse's AT1s were structured with permanent writedown language, as is UBS's outstanding stack.
Investors who participated in the calls told IFR they had been more of a general update, during which the bank's capital plans were discussed, rather than a roadshow aimed specifically at laying the ground for an AT1 trade. They said their impression was that an AT1 issuance is not imminent and that – at least at the time of the calls last week – UBS had not yet taken a decision on any change in structure. A UBS spokesperson declined to comment.
Bankers, however, said a switch to an equity conversion structure would require various approvals and would be a relatively long process. They noted that when BNP Paribas switched from a writedown structure to an equity conversion structure for its US dollar AT1 issuance earlier this year, the French bank first had to secure the approval of its shareholders at its AGM in May. It sold its first such transaction in August.
One investor at an asset management firm said he is confident UBS would be able to access the AT1 market and said an equity conversion transaction would be well received by investors.
"It would help put the CS malaise behind them, at least psychologically, and the issue of subversion of the capital structure, with equity not being zeroed," he said.
A second investor at an asset manager said, however, that in his view the use of either a writedown or equity conversion structure would not be decisive. "I would be relatively agnostic either way, as the losses would be significant if UBS ever got to that stage," he said.
The pricing of any issue would also be closely scrutinised. Market participants have suggested that UBS will have to pay an additional premium to tap the AT1 market to compensate investors for jurisdictional risk after Swiss regulator Finma's controversial decision to zero Credit Suisse's AT1s while still giving its equity holders shares in UBS – which has led investors to launch multiple lawsuits.
However, the second investor questioned if a large concession would be required, suggesting many investors had moved on. "To a large extent, UBS has recovered quite well after the bail-in," he said. "They are out today with a holdco transaction in US dollars [with IPTs] around 25bp wide of their secondary curve. They are trading in line with issuers like BNP Paribas and ING in US dollars, which obviously haven't had the same issues UBS has had."
"I'm not sure they will have to pay an exorbitant premium ... they have told quite a good story regarding the CS acquisition."
UBS's next AT1 up for a call is a S$700m (US$518m) 5.875% transaction redeemable on November 28. After that is a US$2.5bn 7% note, callable in January. Analysts have said the bank is likely to be keen to maintain its investor-friendly policy of calling its AT1s at the first opportunity.
Ahead of all that, the bank is selling a three-part 144A-registered holdco senior transaction – the latest in a series of Yankee issuances from European lenders, with supply in that sector resurgent after a supportive shift in cross-currency levels.
The self-led deal comprises 4.25-year non-call 3.25, six-year non-call five and 11-year non-call 10 tranches marketed with initial price thoughts of US Treasuries plus 175bp–180bp area, 200bp area and 220bp area, respectively.
The deal is set to be priced during US hours later on Monday.
Bankers saw the bonds' fair value slightly tighter than the second investor, calculating that the IPT levels offered new issue concessions of around 30bp.