Barclays Sells $2 Billion of Its First Tier 1 CoCos on New Rules

Barclays Plc (BARC), the second-biggest U.K. lender by assets, priced $2 billion of its first junior bonds that meet new regulations on bank capital.

The lender sold undated, contingent convertible bonds that will turn into equity if its Tier 1 capital ratio falls below 7 percent of risk-weighted assets, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The notes, which pay 8.25 percent, are the first from a U.K. bank and the fourth issue in Europe.

Banks are remaking their capital structures to include a series of buffers that can be used to cushion against losses, restore the issuer as a going concern, or fund its winding up, all without calling on taxpayers. The notes from London-based Barclays may herald a wave of issuance, independent research firm CreditSights Inc. said in a Nov. 11 report.

“A coupon above 8 percent is the important thing,” said Daniel Bjork, who runs the $145 million Swisscanto Bond Invest CoCo fund. “Two billion dollars looks on the high side.”

Banco Bilbao Vizcaya Argentaria SA, the second-largest Spanish bank, issued the first so-called additional Tier 1 note in May this year, paying a 9 percent coupon on a $1.5 billion deal. It was followed by Societe Generale SA (GLE) with a $1.25 billion note paying 8.25 percent, and Banco Popular Espanol SA (POP), which raised 500 million euros ($672 million) paying 11.5 percent. Popular’s was the first additional Tier 1 transaction in the single currency.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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