The takeover of Credit Suisse by UBS, which was decided Sunday for CHF 3 billion, includes a series of additional measures, including a full write-down of the face value of the acquired bank's Additional Tier 1 loans of nearly CHF 16 billion.
The Swiss Financial Market Supervisory Authority (FINMA) justifies this write-off of subordinated debt by exceptional state support.
As a reminder, Additional Tier 1 (AT1) subordinated debt or Contingent Convertible bonds (CoCos) are a type of conditional mandatory convertible bond, which is converted into shares of a company when the company's equity ratio falls below a certain level. The bondholder then receives shares in the company, usually after the company's share price has fallen sharply.
It is very important to note that CoCos are by nature totally different from traditional convertible bonds. Indeed :
For these reasons, we do not have and do not wish to hold this type of security in our convertible bond & credit high yield portfolios (open-end funds, dedicated funds and mandates).
*Cocos : Contingent Convertible bond