Reuters: Bankruptcy News: ABN paves the way for Asian-focused Tier 2

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ABN paves the way for Asian-focused Tier 2 Aug 29th 2012, 14:42 By Aimee Donnellan and Helene Durand Wed Aug 29, 2012 10:42am EDT LONDON, Aug 29 (IFR) - Dutch lender ABN AMRO (A2/A+/A+) is set to test private Asian and Swiss retail investor appetite for European bank Tier 2 dollar debt in September, a strategy that is expected to be replicated by other European banks in the coming months. A three-day Asian and European investor roadshow starting on September 3, via Bank of America Merrill Lynch, Citigroup, HSBC and UBS, is expected to be followed by a deal shortly thereafter. The Asian and Swiss retail market has been a favourite for banks and insurance companies looking to raise hybrid Tier 1 debt as these investors favour the high yields offered by the instruments. European banks have tended to stay closer to home when it comes to Tier 2 debt because they could print with attractive levels and structures. However, changes in the regulatory environment have meant that European debt investors are more wary of the asset class. Furthermore, investors have been reluctant to buy callable structures because a number of banks passed on call dates, leaving buyers holding bonds they thought would be retired at the first opportunity. Asian buyers, on the other hand, have been a lot more receptive to callable structures. So while ABN might not be able to achieve a better pricing level versus euros, the fact that it has the option to retire the deal at the five-year point - when it begins losing its regulatory benefit - will be attractive for the issuer. The transaction will be the second Tier 2 debt sale since the publication of the EC's draft Crisis Management Directive and comes hot on the heels of the issuer's own EUR1bn 10-year bullet issue sold in July. Banks have been focusing on Tier 2 bank debt in recent months due to the ongoing uncertainty surrounding Additional Tier 1. "Overall investors have a higher level of confidence in Tier 2 and issuers are comfortable they can sell decent sized deals," said a banker. The market is currently waiting for more clarity from the European Banking Authority on the features that issuers will be able to include in Additional Tier 1. A decision is expected to be reached in November but market participants say the less than investor-friendly terms contained in the CRD IV draft could mean issuers pay a higher price. Marcel Klopper, head of capital management at ABN, has stated in the past that he is keen to take advantage of any available window to issue Tier 2. "Under the expected implementation of CRD IV, we will have a large amount of Tier 2 that will not be eligible as capital from January 1 2013 and we wanted to make use of windows of opportunity in the market, thus avoiding a situation where we might be forced to raise capital in a very stressed market," he said in July. That deal attracted orders in excess of EUR2.5bn. As was the case with the July offering, there will be no contractual loss-absorption or point of non-viability in the upcoming deal. However, a banker said there are still question marks over how the bond will be treated under the terms of the European Crisis Management Directive. (Reporting by Aimee Donnellan Helene Durand; Editing Alex Chambers & Julian Baker) Link this Share this Digg this Email Reprints

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