Intesa Sanpaolo SpA’s subordinated bonds gained after Italy’s second-biggest lender offered to swap the securities for new notes that will meet toughened regulatory requirements.
The European Union is phasing in new rules on regulatory capital meaning that existing junior notes will gradually be disqualified from January 2014, the bank said in a statement. To act as Tier 2 capital, a layer of debt that helps protect senior obligations from loss, bonds must in future be structured so they can absorb losses if the issuer needs to be propped up.
“The usefulness of the existing bonds as capital will start to taper off from next year,” said Roger Francis, a credit analyst at Mizuho International Plc. “It’s a question of cost-effectiveness.”
Turin-based Intesa Sanpaolo’s 1.13 billion euros ($1.5 billion) of 6.625 percent bonds due May 2018, which the issuer is offering to buy back at 107.75 cents, gained 2 cents on the euro to 107.18, according to Bloomberg prices. The lender’s 1.45 billion euros of 5 percent notes maturing in May 2019 gained 2.5 cents to 102.5, the price at which the bank said it will buy them back.
“The exchange offer is aimed at allowing Intesa Sanpaolo to optimize the composition of its regulatory capital,” the bank said in the statement.
The new notes will pay 4.5 percentage points more than the benchmark 10-year mid-swap rate, the bank said in the statement. They will be denominated in euros and will have the same aggregate amount as the notes accepted in the exchange. Intesa Sanpaolo said it will accept all the bonds in the series that are covered by the offer.