Under pressure from the Swiss bank regulator Credit Suisse is issuing High-Trigger CoCos:
Credit Suisse today announced a number of measures to accelerate the strengthening of its capital position in light of the current regulatory and market environment. An immediate set of actions will be implemented to increase the capital by CHF 8.7 billion. Additional capital actions and earnings related impacts are to increase the capital by a further CHF 6.6 billion by year-end 2012.
The measures will result in an expected end-2012 look-through Swiss Core Capital Ratio of 9.4%, compared to the 2018 requirement of 10%. Look-through Swiss Core Capital includes look-through Basel III Common Equity Tier 1 (CET1) and existing participation securities (“Claudius notes”) that qualify as part of the Swiss equity requirement in excess of the 8.5% Basel III G-SIB Common Equity Tier 1 (CET1) ratio.
The measures will result in an expected look-through Swiss Total Capital Ratio of 10.8% at end 2012. This broadly compares to the figure of 5.9% calculated by the Swiss National Bank (SNB) at the end of 1Q12 and published in its 2012 Financial Stability Report. Look-through Swiss Total Capital includes look-through Basel III CET1 and the participation securities (“Claudius notes”). Additionally it includes the Group’s Buffer Capital Notes (“CoCos with high trigger”).
There are no details available on the projected notes, but they have some Tier 2 Buffer Capital Notes outstanding.
For example, there is a USD 2-billion issue of 7.875 per cent. Tier 2 Buffer Capital Notes due 2041:
Interest on the BCNs will accrue from and including 24 February 2011 (the ‘‘Issue Date’’) to (but excluding) 24 August 2016 (the ‘‘First Optional Redemption Date’’) at an initial rate of 7.875 per cent. per annum, and thereafter at a rate, to be reset every five years thereafter, based on the Mid Market Swap Rate (as defined herein) plus 5.22 per cent.
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If a Contingency Event or a Viability Event (each as defined herein) occurs, the BCNs shall, subject to the satisfaction of certain conditions, mandatorily convert into Ordinary Shares (as defined herein) which shall be delivered to the Settlement Shares Depository (as defined herein) on behalf of the Holders, as more particularly described in ‘‘Terms and Conditions of the BCNs—Conversion’’. In the event of a Contingency Event Conversion (as defined herein), such Ordinary Shares may, at the election of CSG, be offered for sale in a Settlement Shares Offer as described herein.
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Contingency Event means that CSG has given notice to the Holders that CSG’s Core Tier 1 Ratio (prior to the Basel III Regulations Date) or the Common Equity Tier 1 Ratio (on or after the Basel III Regulations Date) is below 7 per cent. as at the date of the financial statements contained in a Quarterly Financial Report and that a Contingency Event Conversion will take place.
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Viability Event means that either: (a) the Regulator has notified CSG that it has determined that Conversion of the BCNs, together with the conversion or write off of holders’ claims in respect of any other Buffer Capital Instruments, Tier 1 Instruments and Tier 2 Instruments that, pursuant to their terms or by operation of laws are capable of being converted into equity or written off at that time, is, because customary measures to improve CSG’s capital adequacy are at the time inadequate or unfeasible, an essential requirement to prevent CSG from becoming insolvent, bankrupt or unable to pay a material part of its debts as they fall due, or from ceasing to carry on its business; or (b) customary measures to improve CSG’s capital adequacy being at the time inadequate or unfeasible, CSG has received an irrevocable commitment of extraordinary support from the Public Sector (beyond customary transactions and arrangements in the ordinary course) that has, or imminently will have, the effect of improving CSG’s capital adequacy and, without which, in the determination of the Regulator, CSG would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due or unable to carry on its business.
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The BCNs will be converted into a number of Ordinary Shares determined by dividing the principal amount of each BCN by the Conversion Price in effect on the relevant Conversion Date. ‘‘Conversion Price’’ means (i) at any time when the Ordinary Shares are admitted to trading on a Recognised Stock Exchange, in respect of any Conversion Date, the greatest of (a) the Reference Market Price of an Ordinary Share on the fifth Zurich Business Day prior to the date of the relevant Contingency Event Notice or, as the case may be, the Viability Event Notice translated into United States dollars at the Exchange Rate, (b) the Floor Price on the fifth Zurich Business Day prior to the date of the Contingency Event Notice or, as the case may be, the Viability Event Notice; and (c) the nominal value of each Ordinary Share on the Share Creation Date (being, at the Issue Date, CHF 0.04) translated into United States dollars at the Adjusted Exchange Rate, or (ii) without prejudice to ‘‘Takeover Event and De-listing’’ below, at any time when the Ordinary Shares are not admitted to trading on a Recognised Stock Exchange by reason of a Non-Qualifying Takeover Event or otherwise, the greater of (b) and (c) above.
Very good. There’s a high trigger and conversion at market price. The part I dislike is that the conversion trigger is a regulatory ratio – we found during the crisis that regulatory ratios aren’t worth much in the course of a panic. Still – much better than anything we’re ever likely to see in Canada!