By Aimee Donnellan and Helene Durand
LONDON, Nov 4 (IFR) - Barclays Plc begins a week of roadshows Tuesday for a planned Additional Tier 1 capital bond, as it tries to beef up its leverage ratio to meet tougher new regulation next year.
Barclays is opting for an aggressive AT1 deal after announcing last week its ratio had stayed at 2.2% despite shedding more than EUR100bn in assets and completing a GBP5.8bn rights issue.
The UK bank is undertaking a series of measures to meet the 3% leverage ratio level required by the June 2014 deadline set down by the Prudential Regulation Authority (PRA).
Barclays said in July it could issue up to GBP2bn in AT1 debt, and will hit the road on Tuesday with its own investment bank acting as sole bookrunner and structuring advisor.
Citigroup, Deutsche Bank, Goldman Sachs, SMBC Nikko, and UBS acting as joint lead managers. The roadshow, for investors in the US, Europe and Asia, will wind down on November 11.
"The market has been waiting a long time for this deal," said one capital expert.
"And I think many will be watching closely to see what currency and structure it goes for and what coupon it offers investors."
The PRA required the trigger to be fully loaded - meaning that the bank's GBP7.6bn of goodwill capital currently acting as the loss-absorbing cushion will not be counted for the regulatory transitional period that ends in 2019.
At 7%, the trigger is much higher than the 5.125% required under Europe's new Basel regulatory regime. This was demanded by the PRA in order for the instruments to count.
Barclays said the rights issue would lift its leverage ratio to 2.9%, or 2.6% based on the same criteria used by the regulator. Its Common Equity Tier 1 capital ratio improved to 9.6%, based on full Basel capital rules being phased in.
Unlike the previous two CoCos issued by Barclays, this will be a much riskier instrument as it will be Additional Tier 1 instead of Tier 2. Unlike Tier 2, issuers can skip coupon payments on AT1 - and the instruments are perpetual rather than having a fixed maturity date.
Fitch said on Monday that it would rate the securities BB+, five notches below the bank's viability rating. The bonds are "notched twice for loss severity to reflect the conversion into ordinary shares on breach of the trigger, and three times for non-performance risk," the agency said.
"The notching for non-performance risk reflects the instruments' fully discretionary interest payment, which Fitch considers the most easily activated form of loss absorption."
At its AGM in April, Barclays shareholders gave the bank approval to issue a bond that converts into equity.
BBVA was the first bank to issue CRD4 compliant Additional Tier 1 this year, but unlike with the new Barclays trade, that deal was not broadly targeted at the US investor base.
"This will be the first Additional Tier 1 with share conversion done in the US market and also the first European Additional Tier 1 from a European bank," a banker said. "The dollar market has a lot of capacity and the pricing stacks up better."
Other sources said that while a euro offering had not been ruled out, the dollar market had the widest breath of investors.
"Banks that are targeting the Reg S market are cutting out about 30% of the global investor base that can't participate in these deals."
The Barclays CoCos sold in November 2012 and April 2013 are likely to provide relevant pricing markers for the upcoming deal. The 2022 bullet was quoted at 7.13% and the 2023 callable in 2018 was quoted at 6.21% on a yield-to-call basis.