ING Hybrids - No Call, No Foul?

On the wire:

As part of its Restructuring Plan approved by the European Commission on 18 November 2009, ING Groep N.V. is required to ask the European Commission on a case-by-case basis for authorisation to call Tier-2 capital and Tier-1 hybrid securities, until the earlier of 18 November 2012 and the date on which ING has fully repurchased the core-Tier 1 securities issued to the Dutch state.

Following a request for authorisation to call, the European Commission denied permission to redeem the 8.439% Noncumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust III and guaranteed by ING, Cusip No. 44978NAA3 on their first call date on 31 December 2010.

In December 2000, ING Capital FundingTrust III issued USD 1.5 billion of 8.439% Noncumulative Guaranteed Trust Preferred Securities, guaranteed by ING, that qualify as hybrid Tier-1 capital. Following the first call date of the Trust Preferred Securities on 31 December 2010, the interest rate on the Trust Preferred Securities will change from the current annual fixed rate of 8.439% to a floating rate payable quarterly of 3 months LIBOR plus 360 basis points, which at current rates is approximately 3.9%.

 It is usually held that Tier 1 hybrids will be called prior to floating.  There are many arguments why this is the case, but typically one hears that if they are not called, the issuer better not come back to market or...  In this case, the EC denied ING the ability to call the security, so this mitigates the reputational/necessity impact.  It would not surprise me to continue to see this happen given the current environment.

When combined with the recent attempts to remove the replacement capital covenant (see the recent JPM tender and consent), risks and structure will have to be revisited by investors.