The primary market for European bank AT1 deals burst into life last month, with four new offerings coming in quick succession, attracting strong demand from yield-hungry investors despite offering coupons far below those on the first-generation contingent convertibles that banks sold in 2011 and 2012, and even on more recent AT1 deals launched late in 2013.
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Nationwide Building Society came with a £1 billion ($1.65 billion) non-call five paying a 6.875% coupon that converts into core capital deferred shares – the closest building society equivalent to straight equity – if the issuer breaches a 7% common equity tier 1 (CET1) ratio. Santander sold a €1.5 billion non-call five paying 6.25% that converts into equity if the bank’s CET1 ratio falls below 5.125%. Danske Bank paid a 5.75% coupon on its high-trigger €750 million non-call six transaction that suffers temporary write-down if the bank breaches 7% on its CET1 ratio. KBC then drove down coupons to a new low with a €1.4 billion non-call five that pays 5.625% and suffers temporary write-down to restore the bank’s CET1 to 5.125%,