Intesa Sanpaolo has placed a perpetual bond (subordinate of type At1) with a very interesting yield of 6,375% after opening the book in the 6,625% area. At the end of the morning, according to Bloomberg, requests from institutional investors were over 3 billion dollars out of a placement of 1 billion.L
The peculiarity of these bonds is that, due to their relative risk and high entry threshold, they are not intended for retail customers but for institutional investors. In detail, the expected coupon is semi-annual and variable. The issue has a denomination of 200 thousand euros and will be traded on the Luxembourg Stock Exchange. The operation should conclude in the next few hours with the definition of the price, an issue that takes place in a moment of great volatility for the markets between the conflict in Ukraine and inflation at historic highs.
Intesa Sanpaolo: the first two perpetual bonds
It is not the first time for the group led by Carlo Messina. On 20 February Intesa Sanpaolo successfully placed two tranches of perpetual bonds At1 for a total of 1,5 billion euro against a demand that has reached 8 billion.
The last At1 perpetual bond was issued on 25 August 2020 in two tranches, of 750 million euro each, with total orders that broke through the 6,5 billion mark. At the time, the two tranches were one bond callable from 1 March 2028 and a second callable from 1 September 2031. The yield of the first tranche, which had seen orders for over 3 billion, was set at 5,5 % and that of the second, with orders over 3,5 billion, at 5,875%.
How do Additional Tier 1s work?
These are bonds that have the characteristic of participating in the absorption of the bank's losses in the event that the capital ratios of the institution in question fall below a certain threshold (Tier 1 is one of the most important capital ratios for banking institutions ). The bonds in question are of the "perpetual" type because they are never repaid except after a certain number of pre-established years, at the issuer's discretion, and they do not pay any coupon in the event of loss.
In other words, it is a tool to defend the capital or the bank, but unlike other hybrid forms, the bond it is never converted into capital. It follows that this type of bond offers higher yields to compensate for the greater risk.
Therefore, AT1 securities could be a good choice in a scenario of great volatility – such as the one we are experiencing – so as to stimulate the interest of those investors who are more yield-oriented.
