Interesting development in Switzerland with Credit Suisse drawing up an exchange of tier 1 notes into contingent capital (Cocos) notes in order to conform to Swiss TBTF regulations. While it still has to be approved by shareholders - due to the potential issuance of shares - the deal could be the start of using contingent capital notes to replace tier 1 notes which will not be afforded the capital treatment they have enjoyed under new BASEL rules as well as country regulations. While this is a private transaction with existing hybrid holders, it will help to raise awareness of the vehicle as public transactions start to occur.
Swiss banking giant Credit Suisse Group AG (CS: News ) Monday said it would issue about 6 billion Swiss francs (about $6.16 billion) in the form of contingent capital to meet future capital requirements under the proposed new capital rules in Switzerland.
The Tier 1 buffer capital notes would be issued to its strategic investors, Qatar Holding LLC and The Olayan Group. Such notes would be paid up after October 2013 for cash or in exchange for Tier 1 capital notes issued in 2008, the company said.
The form of contingent capital will satisfy an estimated 50% of the high trigger contingent capital requirement under the rules of the country's financial regulator FINMA as part of the proposed Swiss TBTF-regime. The Zurich-based bank said it is well ahead of schedule to meet the new capital requirements by 2019.
Under the agreement with the investors, Credit Suisse would issue $3.5 billion of Tier 1 BCN (buffer capital notes), with a coupon of 9.5%, and 2.5 billion francs of BCN, with a coupon of 9%. The issuance will be for cash or in exchange for $3.5 billion of 11% and 2.5 billion francs of 10% Tier 1 capital notes issued in 2008.
In the deal, the BCNs will be converted into Credit Suisse ordinary shares if the company's reported Basel III common equity Tier 1 ratio falls below 7%.
The bank said the conversion price will be the higher of a floor price of $20/20 francs per share, subject to customary adjustments, or the daily weighted average sale price of the shares over a trading period preceding the notice of conversion.
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