UPDATE 1-Nationwide plans first ever sterling AT1 issue

Thu Feb 27, 2014 8:38am EST

By Aimee Donnellan and Philip Wright

LONDON, Feb 27 (IFR) - Nationwide Building Society is considering issuing the first sterling-denominated Additional Tier 1 bond, having hired a group of banks to manage an investor roadshow ahead of the possible transaction, said one of the lead managers on Thursday.

Citigroup, Deutsche Bank, RBS and UBS are arranging the meetings, which will take place in the United Kingdom from Friday, February 28.

Additional Tier 1 is a form of loss-absorbing capital that can be written down or converted into equity if a bank runs into difficulty.

While Nationwide, as a mutual, has no equity into which the bonds can convert, it did present the market with a new product last November - Core Capital Deferred Shares (CCDS). And it is into these that the new bonds would convert in the case of Nationwide's CET1 ratio breaching 7%, said a banker involved in the exercise.

CCDS are similar to equity, being truly perpetual and with distributions that are variable and entirely discretionary. November's GBP500m offering attracted orders of GBP1.6bn and traded up to around 107 from its par issue price within days of being sold. One banker today said it was now quoted around 120.

Also of interest to a number of potential issuers waiting in the wings is that this will be the first AT1 transaction from an unlisted entity and therefore something that could provide them with a template, said the banker.

He also stressed the importance of opening up a third currency for issuance of the asset class, away from the euros and US dollars that have been seen before. While there is currently a large degree of crossover in terms of investors across currencies, he sees the sector deepening and more accounts getting involved.

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