By Aimee Donnellan
LONDON, April 26 (IFR) - BBVA is poised to be the first
European bank to sell Additional Tier 1 bond securities that
comply with the region's new Capital Requirements Regulation
(CRR), possibly kick-starting a slew of deals heard to be in the
pipeline to bolster bank capital ratios.
The Spanish bank, which also reported a 72.6% rise in
first-quarter net profit on Friday, mandated BBVA, Bank of
America Merrill Lynch, Goldman Sachs and UBS as joint
bookrunners for the AT1 security, which could price as early as
Marketing for the perpetual Reg S deal will begin on Monday
and will include investor meetings in Asia, the UK and
On a call with analysts this morning, the issuer said it is
likely to be a benchmark size.
The transaction will have an equity conversion structure
with a 7% trigger.
That takes into account an additional charge imposed by the
European Banking Authority for sovereign exposure following
stress tests in 2011 that required all European banks to meet a
9% Core Tier 1 (CT1) ratio.
For the purpose of meeting this ratio, the EBA counts AT1
CoCos if they have a 7% CT1 trigger.
"They produced a term sheet that had a 7% CT1 trigger for as
long as the sovereign charge applied, and when it ceases, the
trigger becomes a 5.125% CET1 trigger," said a London-based
hybrid capital banker.
"The idea was that once the sovereign crisis in Europe
receded, the additional charge would fall away."
BBVA has a CT1 capital ratio of 11.2%, according to analysts
at Mizuho, which gives investors a 420bp buffer over the 7%
Although the EBA is yet to disclose the final details of its
technical standards, BBVA is likely to have got the go-ahead
from the Spanish regulator, one market source said.
"It will be interesting to see what loss-absorption
mechanics this deal will include," said the banker.
"Investors are going to be looking to old-style Tier 1 bonds
and then will charge the bank for the inclusion of a trigger and
Some capital structuring bankers have predicted strong AT1
deal flow in the second quarter. Barclays, for example, is a
contender to issue the securities, after winning approval from
shareholders on Thursday.
The BBVA deal also coincides with a strong bid for
peripheral debt, and in particular for national champions, which
was reflected in UniCredit's USD750m 10NC5 Tier 2 bond on
Wednesday. The deal - the first subordinated issue from the
Italian bank in six months - attracted an order book of more