Mar 20, 2023
Buyer Beware: Credit Suisse AT1 Bond Documents Warn of Writedown
(Bloomberg) -- News that roughly $17 billion of Credit Suisse Group AG’s AT1 bonds are set to be wiped out rattled global markets and sent similar debt tumbling in Asian trading Monday. But such risks were clearly stated by the bank when issuing its debt.
Take the Swiss bank’s 9.75% perpetual bond, for instance. Issuance documents for the “Perpetual Tier 1 Contingent Write-down Capital Notes” state that in the situation of a write-down event, the full principal amount will be written down to zero, holders will have irrevocably waived their rights to the repayment of the notes, and the notes will be permanently cancelled.
Such events can be triggered by several scenarios, including if the regulator has determined that a write-down of the bond is essential to prevent Credit Suisse Group from becoming insolvent or bankrupt. Indeed, DoubleLine Capital’s Jeffrey Gundlach said in a series of tweets that bondholders have only themselves to blame.
Of course, wiping out the value of bonds while preserving billions of dollars of value for equity investors has raised fears about the pecking order of different claims — and will no doubt be examined closely by lawyers.
But the threat of writedowns was clearly flagged as a risk from day one of the bonds’ issuance. Here are some of the relevant clauses.
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