Credit Suisse’s latest US$1.65 billion tranche of perpetual securities - rated B+ - is likely to carry a coupon of 9.75% a year. According to the circular, the indicative rate, which has not been confirmed is fixed for the first five years, and will be reset on June 23, 2027, and every five years subsequently. Distributions are payable semi-annually; discretionary; non-cumulative; with a dividend stopper; and subject to write-down.
The perpetual securities will be additional tier 1 (AT1) capital. As such, “the circumstances triggering a write-down are unpredictable. Future regulatory or accounting changes to the calculation of the CET1 amount and/or RWA amount may negatively affect the CET1 Ratio and thus increase the risk of a Contingency Event, which will lead to a write-down, as a result of which holders will lose the entire amount of their investment in the notes,” the Credit Suisse circular states. The notes will not be convertible into shares of the Issuer upon the occurrence of a Contingency Event or a Viability Event or at the option of the holders at any time, according to the announcement.
According to sources close to Credit Suisse, the pricing of the perps is due to market conditions. The higher cost in terms of coupon (9.75%) and spread (new reset of T+638bps vs. of $MS+511, (T+514 equivalent)) should be assessed in the context of a challenging market backdrop and US$1.65 billion size raised (recent $AT1s were US$500 size and Investment Grade (IG) rated).
Credit Suisse has had a challenging two years. It had to close some US$10 billion of funds linked to Greensill Capital and suffered a US$5.5 billion trading loss from Archegos. In May, the UK’s financial regulator put the bank on a watchlist of groups needing stricter supervision. Credit rating agencies Fitch and S&P both downgraded the bank’s debt last month.
