Reuters: Bankruptcy News: Societe Generale eyes future with perpetual Tier 2

Reuters: Bankruptcy News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

Societe Generale eyes future with perpetual Tier 2 Nov 30th 2012, 15:27 Fri Nov 30, 2012 10:27am EST * Perpetual Tier 2 a step closer to Additional Tier 1 * Small premium paid and rating agency equity credit may tempt other issuers By Helene Durand LONDON, Nov 30 (IFR) - Societe Generale broke new ground with a USD1.5bn perpetual non-call 5.5-year Reg S Tier 2 this week. The deal was designed to create a liquid benchmark off which to price future Additional Tier 1 instruments, the bank's head of group funding told IFR. The fact that the notes also received 100% equity credit from S&P and paid a small premium could tempt other borrowers to follow. Typically Tier 2 debt has a final maturity and coupons cannot be deferred, but SG's deal is perpetual and features optional and mandatory coupon deferral features. This makes the deal (led by Deutsche Bank, Morgan Stanley, Societe Generale, Standard Chartered and UBS) similar to old-fashioned Upper Tier 2 instruments. Upper Tier 2 notes have been stripped out under the Basel 3 framework, but used to sit between Lower Tier 2 and hybrid Tier 1. "We chose this structure with a view on future Tier 1 instruments," said Vincent Robillard, head of group funding at SG. "This perpetual Tier 2 with cumulative deferrable coupons is close to how Additional Tier 1 instruments will look like. Therefore, by having this point on the curve, it means we will have a liquid benchmark that investors will be able to use as a pricing reference. "While getting 100% equity credit for the trade from S&P was an added benefit, it was not the main driver for the trade." Regulators have been more willing recently to sign off on Tier 2 issues. Robillard said the Authorite de Controle Prudentiel had given the nod to the structure. "Based on what is known and the current draft, this is compliant under CRD4," he said. Bank hybrid Tier 1 issuance has ground to a halt since regulators started to redraft rules on their features to ensure that those who buy them bear losses before any taxpayer money has to be injected into a bank under financial stress. This regulatory uncertainty and doubts over what structures investors are willing to accept has stymied the development of new-style Additional Tier 1. "The Barclays USD3bn permanent write-down Tier 2 and this deal should give the market confidence that Additional Tier 1 issuance can be contemplated and that there is investor demand for this type of product," said a debt capital markets banker. Another added that SG was indeed a step in the direction of Additional Tier 1 given its perpetual maturity and ability to defer coupons, although having non-cumulative coupons and full loss-absorption will be a further stretch for investors. If the level of demand is anything to go by - in excess of USD9bn, 54% of which came from institutional buyers - investors are certainly warming to more aggressive structures. Bankers said others might be tempted to adopt similar structures given the demand and the equity credit the bond benefits from. Both Danske Bank and Gazprombank structured transactions recently that addressed S&P's Risk-Adjusted Capital ratio - the agency's way of looking at banks' capital adequacy positions in a consistent and independent manner. However, Danske's USD2bn Tier 2 launched in September had a final maturity while a Gazprombank's USD1bn perpetual non-call 5.5-year sold in October had non-cumulative coupon language. "Others will look at it but it is very much credit dependent and not everyone will want to pay for the extension," said a banker. At the final print of 6.625%, SG ended up paying a mere 42.5bp over where Danske was trading in the secondary market. Danske Bank was the last issuer to get full equity credit from S&P for a dated structure before the agency tightened up its criteria. (Reporting by Helene Durand, Editing by Alex Chambers, Matthew Davies) Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions