Credit Suisse AT1 Wipeout
Credit Suisse Group AG is facing a potentially costly question from a panel of derivatives experts: will a wipeout of its Additional Tier 1 (AT1) bonds trigger a payout to investors?
The International Swaps and Derivatives Association (ISDA) has asked the panel to determine whether a “trigger event” has occurred in the event of a full write-down of the Swiss bank’s AT1 bonds. The decision could have a major impact on the bank’s finances, as well as the wider market for AT1 bonds.
What are AT1 Bonds?
AT1 bonds are a type of debt instrument issued by banks. They are designed to absorb losses in the event of a bank failure, and are typically held by institutional investors. AT1 bonds are typically “non-cumulative”, meaning that if the issuer does not make a payment on the bond, the bondholder does not have the right to claim the missed payment at a later date.
Credit Suisse AT1 Bonds
Credit Suisse has issued several AT1 bonds since 2015. The bonds have a face value of $1.5 billion and are due to mature in 2023. The bonds are non-cumulative, meaning that if the bank does not make a payment on the bond, the bondholder does not have the right to claim the missed payment at a later date.
ISDA Determinations Committee
The ISDA Determinations Committee is an independent panel of experts that is responsible for determining whether a “trigger event” has occurred in the event of a full write-down of the Swiss bank’s AT1 bonds. The panel is made up of representatives from the banking, legal, and derivatives industries.
The panel has been asked to consider whether a full write-down of the AT1 bonds would constitute a “trigger event” under the terms of the bonds. If the panel determines that a trigger event has occurred, then the bondholders would be entitled to a payout from Credit Suisse.
Potential Impact of the Decision
The decision of the ISDA Determinations Committee could have a major impact on the bank’s finances, as well as the wider market for AT1 bonds. If the panel determines that a trigger event has occurred, then Credit Suisse would be liable for a payout to the bondholders. This could have a significant impact on the bank’s balance sheet, as well as the market for AT1 bonds.
The decision could also have implications for other banks that have issued AT1 bonds. If the panel determines that a trigger event has occurred, then other banks may be more cautious when issuing AT1 bonds in the future.
Conclusion
Credit Suisse Group AG is facing a potentially costly question from a panel of derivatives experts: will a wipeout of its Additional Tier 1 (AT1) bonds trigger a payout to investors? The decision of the ISDA Determinations Committee could have a major impact on the bank’s finances, as well as the wider market for AT1 bonds. If the panel determines that a trigger event has occurred, then Credit Suisse would be liable for a payout to the bondholders. This could have a significant impact on the bank’s balance sheet, as well as the market for AT1 bonds. The decision could also have implications for other banks that have issued AT1 bonds.