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By Aimee Donnellan
LONDON, April 26 (IFR) - BBVA is poised to be the firstEuropean bank to sell Additional Tier 1 bond securities thatcomply with the region's new Capital Requirements Regulation(CRR), possibly kick-starting a slew of deals heard to be in thepipeline to bolster bank capital ratios.
The Spanish bank, which also reported a 72.6% rise infirst-quarter net profit on Friday, mandated BBVA, Bank ofAmerica Merrill Lynch, Goldman Sachs and UBS as jointbookrunners for the AT1 security, which could price as early asnext week.
Marketing for the perpetual Reg S deal will begin on Mondayand will include investor meetings in Asia, the UK andSwitzerland.
On a call with analysts this morning, the issuer said it islikely to be a benchmark size.
The transaction will have an equity conversion structurewith a 7% trigger.
That takes into account an additional charge imposed by theEuropean Banking Authority for sovereign exposure followingstress tests in 2011 that required all European banks to meet a9% Core Tier 1 (CT1) ratio.
For the purpose of meeting this ratio, the EBA counts AT1CoCos if they have a 7% CT1 trigger.
"They produced a term sheet that had a 7% CT1 trigger for aslong as the sovereign charge applied, and when it ceases, thetrigger becomes a 5.125% CET1 trigger," said a London-basedhybrid capital banker.
"The idea was that once the sovereign crisis in Europereceded, the additional charge would fall away."
BBVA has a CT1 capital ratio of 11.2%, according to analystsat Mizuho, which gives investors a 420bp buffer over the 7%conversion trigger.
DEALS UNLEASHED?
Although the EBA is yet to disclose the final details of itstechnical standards, BBVA is likely to have got the go-aheadfrom the Spanish regulator, one market source said.
"It will be interesting to see what loss-absorptionmechanics this deal will include," said the banker.
"Investors are going to be looking to old-style Tier 1 bondsand then will charge the bank for the inclusion of a trigger andcoupon deferrals."
Some capital structuring bankers have predicted strong AT1deal flow in the second quarter. Barclays, for example, is acontender to issue the securities, after winning approval fromshareholders on Thursday.
The BBVA deal also coincides with a strong bid forperipheral debt, and in particular for national champions, whichwas reflected in UniCredit's USD750m 10NC5 Tier 2 bond onWednesday. The deal - the first subordinated issue from theItalian bank in six months - attracted an order book of morethan USD3bn.
