Reuters: Bankruptcy News: UPDATE 2-Banco Popular Espanol to test CoCo market boundaries

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UPDATE 2-Banco Popular Espanol to test CoCo market boundaries Oct 1st 2013, 17:18 Tue Oct 1, 2013 9:44am EDT (Adds background, quote) By Helene Durand LONDON, Oct 1 (IFR) - Banco Popular Espanol is set to become the first bank to test European institutional investors' appetite for Spanish contingent capital securities in euros. The bank announced on Tuesday that it was planning a EUR500m contingent convertible capital issue which will count as Additional Tier 1 and if successful will add to evidence that the euro market is becoming a more viable avenue for banks to raise much-needed capital. Regulators in Britain, France, Spain and Italy have agreed banks can count these hybrid bonds as Tier 1 capital - a key measure of financial health. They can also be used to help lift banks' leverage ratio, where regulators are setting strict rules to cap risk. "We have had meeting with investors whom we wall-crossed over the last week and felt there was enough momentum behind the trade," said a source close to the deal. These investors have faced volatile makets this week amid political turmoil in Italy and the US, but Spain has so far escaped unscathed. The previous Tier 1 deal was BBVA's successful US$1.5bn perpetual non-call five-year deal in May this year, but the bank chose the dollar Reg S market as it was the deepest sector. The transaction attracted strong demand from European investors despite being in dollars. CHANGING DYNAMICS The demand dynamics have changed recently and Credit Suisse for example successfully sold a total write-off trade in the single currency. BPE's deal will convert into shares if the bank's Common Equity Tier 1 ratio falls below 5.125% or its Tier 1 ratio falls below 6% although the latter trigger will become redundant from January 2014. The Core Capital EBA ratio was 10.28% in its second quarter which its Tier 1 ratio was 10.46%. The sale of the perpetual bonds will be managed by Bank of America Merrill Lynch, Barclays, Santander and UBS. A roadshow begins on Wednesday to test investors' broader appetite for the trade. (Reporting by Helene Durand, editing by Alex Chambers) Link this Share this Digg this Email Reprints

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