UBS Sells $1.5 Billion AT1, First Since Swiss Reform Pause

(Bloomberg) — UBS Group AG raised $1.5 billion of Additional Tier 1 capital in US dollars, its first foray into the market since Switzerland paused plans to tighten rules on the riskiest type of bank debt.

The lender priced the AT1 bonds, first callable in late 2032, at a yield of 6.875%, compared with revised guidance of 7.25% to 7.375%, tightened from about 7.5% initially, according to a person familiar with the matter who asked not to be identified.

The bond is the first since the Swiss government decided in late April not to proceed for the time being with adjustments to AT1 regulations, a decision that was seen as a win for bondholders. Lawmakers had proposed tougher tests on whether Swiss banks could pay interest on the notes and when they could replace them with new issuance.

“Today’s issue is unexpected,” wrote Simon Adamson, head of financials at CreditSights in a note to clients, citing the bank’s guidance at the end of April that it had completed its AT1 issuance plan for this year. The credit research firm upgraded its recommendation on UBS AT1s after the decision by Swiss authorities.

A UBS representative declined to comment.

UBS is one of the largest issuers of AT1 bonds. It last raised AT1 capital in US dollars in January, when analysts at CreditSights said that regulatory and legal uncertainty could weigh on the lender’s spreads. A month later, it tapped the Australian dollar market, moving into a void created by the local regulator’s decision to phase out this type of debt for domestic banks.

Spreads in the AT1 market have tightened to within 15 basis points of the record set earlier this year, according to a multicurrency index compiled by Bloomberg. Demand has been so strong recently that some banks have been fixing their cost of capital for a decade, an unusually long period.

–With assistance from Gerson Freitas Jr..

(Updates pricing details in p1 and p2.)

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