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Barclays contingent capital notes edge higher on entry to trading market

A new subordinated hybrid issue inked by Barclays Bank is trading modestly higher this afternoon, after the company secured tier 2 capital for the second time in six months under the nascent structure. Barclays today sold $1 billion of 7.75% “contingent capital” subordinated notes (“CoCos”) – due April 10, 2023 and expected to be rated BBB- by S&P and Fitch – at par, to yield 683.3 bps more than midswaps, sources said. The notes are callable at par after five years.

Traders reported indications in a 100/100.25 context after the notes were freed to trade.

The issue is the second of its kind issued by Barclays, following a $3 billion issue placed in November. The issues include a capital-adequacy provision that triggers a write-down to zero in the event Barclays PLC’s consolidated transitional CET1 ratio is less than 7%. As noted in ratings rationale from S&P, CET1 is defined as core tier 1 capital before the adoption of the Capital Requirements Directive (CRD) IV and common equity tier 1 after the adoption date.

S&P projects that Barclays PLC’s consolidated CET1 ratio will be greater than or equal to 401 bps from the trigger, despite recent indications from the company that targets for the fully loaded ratio after Basel 3 implementation was nearer 10.5%. “Nevertheless, we believe that for the next several years its transitional CET1 ratio will typically be comfortably higher than this,” S&P analysts wrote last week. – John Atkins

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