BBVA sells €1bn of AT1 CoCos at 6.5% to pre-fund 2027

✦ Meridian Analysis

BBVA has placed €1 billion of CoCos, the Additional Tier 1 instruments banks use to meet their regulatory capital requirements, at a 6.5% coupon, with demand above €8 billion according to Cinco Días. AT1 is the most junior layer of bank debt: it is perpetual, can be written down or converted into equity if the bank's capital falls below a trigger, and coupons can be cancelled. That is why it pays well above senior or covered debt, and why the issue is about capital management rather than funding cost. Issuing now lets BBVA pre-fund 2027 and replace existing capital instruments ahead of their call dates. The size of the order book relative to the deal shows how much appetite remains for Spanish bank capital paper. Not disclosed in the source: the first call date, the conversion or write-down trigger, the reset spread and the bookrunners.

The Meridian Weekly