SocGen Joins UniCredit Planning AT1 Bonds as Issuance Surges

Societe Generale SA and UniCredit SpA are planning sales of additional Tier 1 bonds, fueling the busiest month for issuance of the subordinated bank debt since the market opened a year ago.

France’s second-biggest bank plans to issue undated contingent convertible notes in euros while Italy’s biggest lender will market securities in dollars, according to people familiar with the deals. European banks sold an equivalent $13.9 billion of the debt this month, almost half the total issued since Banco Bilbao Vizcaya Argentaria SA debuted the notes in April, data compiled by Bloomberg show.

Issuance of AT1 notes, which can be written down or converted into stock if a lender’s capital ratio falls below a preset level, is surging as banks move to comply with new European regulations that aim to pass bailout costs to investors instead of taxpayers. The average yield on contingent capital securities dropped 31 basis points this year to 7.13 percent, according to Bank of America Merrill Lynch index data.

“The market is growing partly because banks need additional tier 1 debt to meet capital targets and because the price from an issuer standpoint is extraordinarily attractive at the moment,” said Eva Olsson, an analyst at Mitsubishi UFJ Securities in London. “UniCredit isn’t necessarily the strongest name in the sector but this bond will get huge focus as it should offer a higher coupon than what we’ve seen from recent issuers.”

UniCredit posted a record 15 billion-euro ($21 billion) loss in the fourth quarter as it set aside money for bad loans and wrote down goodwill from acquisitions, the Milan-based lender said on March 11. The provisions were part of the bank’s efforts to clean up its balance sheet as the European Central Bank reviews lenders before stress tests later this year.

Trigger Levels

UniCredit’s 10-year notes will be written off or convert to equity if the Milan-based lender’s common equity Tier 1 capital falls below 5.125 percent of risk-weighted assets, a person familiar with the matter said. A sale would be the first from an Italian bank, according to data compiled by Bloomberg.

A spokeswoman for UniCredit, who asked not to be named citing company policy, said the bank will hold a three-day roadshow in Europe and Asia to market a potential AT1 sale, which may be launched in the near future.

Societe Generale plans to market bonds that it can redeem after seven years, a person familiar with the matter said. The notes will also trigger at 5.125 percent. It will be the third sale of AT1 securities for the Paris-based lender, which has issued a total $3 billion of the debt, according to data compiled by Bloomberg.

Telefonica Hybrid

In European credit markets today, Telefonica SA is selling a total 1.75 billion euros of hybrid bonds through its Telefonica Europe BV unit, according to a person familiar with the sale. Spain’s largest phone company is marketing 1 billion euros of notes it can buy back after 10 years and 750 million euros of securities callable after six years.

Syngenta AG, the world’s largest maker of crop chemicals, sold 500 million euros of bonds due November 2021 and 250 million euros of floating-rate notes maturing in October 2017, according to data compiled by Bloomberg. It’s the Basel-based company’s first bond sale in the currency in five years, the data show.

Morgan Stanley

Morgan Stanley, owner of the world’s largest brokerage, issued 1.5 billion euros of seven-year notes in euros. It was the New York-based bank’s largest bond sale in the currency in more than three years, data compiled by Bloomberg show.

The cost of borrowing in Europe relative to the U.S. is holding near the lowest in about five years, according to Bank of America Merrill Lynch index data. It’s now 1.3 percentage points cheaper to sell bonds in euros instead of dollars, the data show.

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