Guarantor: UBS AG
Rating: Aa3/AA+/AA
Amount: Sfr250m lower tier two capital
Maturity: 23 October 2018
Issue price: 100.585
Coupon: 2.75% until 23 October 2013; three month Libor plus 62.5bp thereafter
Call option: at par from 23 October 2013
Launch date: Monday 2 October
Payment date: 23 October
Lead mgr: UBS
Bookrunner's comment:
When UBS doesn't need to use funds in Switzerland, it borrows via foreign entities to avoid the new issue stamp duty it would have to pay on a domestic bond. As the cash raised from this deal will be used abroad, there was no point in issuing through the Swiss arm and paying that premium. We chose this structure for two reasons. First, this offers a wider spread than other subordinated issues — a bullet subordinated trade for this borrower recently was priced at mid-swaps plus 8bp, while this one came at 12.5bp over, and investors are obviously interested in that pick up. From the issuer's point of view, there are regulatory advantages to bringing a lower tier two deal. A bullet deal would only have been seen as fully subordinated for two years, then would gradually have been seen, for accounting reasons, as less subordinated each year. Because of the call option — and this deal will be called in seven years — this transaction will be deemed fully subordinated until October 2013. A broad range of accounts has participated in this trade, including asset managers, mutual funds, banks, insurance companies and pension funds. The seven year maturity has helped: it is long enough to offer a pick-up, but not so long that the deal has run into the difficulties we have seen recently at the long end.