Semeris launches library of Additional Tier 1 docs (AT1’s)

Published 30. March 2023.

Semeris launches library of Additional Tier 1 docs (AT1’s)

Against the backdrop of UBS’s takeover of Credit Suisse, where $17 bn of the Credit Suisse AT1 bonds were subject to write-down to zero, Semeris has put together a library of bank Additional Tier 1 docs to assist in understanding if this could happen elsewhere. The Credit Suisse bonds had explicit language about government support leading to a write-down and Semeris Docs was able to search for and identify this language across the AT1 market. To access our AT1 library, please contact your Semeris representative.

Looking in detail at the Credit Suisse bonds (footnote 1), they had write-down language such as:

A "Write-down Event" means either a Contingency Event or a Viability Event.
A "Contingency Event" will occur if CSG (or any Substitute Issuer) gives Holders a Contingency Event Notice.
CSG, or, following any substitution under Condition 13(c), the Substitute Issuer or CSG shall give a notice (the "Contingency Event Notice") to the Holders in accordance with Condition 17 in the event that, as at any Reporting Date, the CET1 Ratio contained in the relevant Financial Report is below the Threshold Ratio; provided [...]
A "Viability Event" will occur if prior to a Statutory Loss Absorption Date (if any) either:
(a) the Regulator has notified CSG that it has determined that a write-down of the Notes, together with the conversion or write-down/off of holders' claims in respect of any and all other Going Concern Capital Instruments, Tier 1 Instruments and Tier 2 Instruments that, pursuant to their terms or by operation of law, are capable of being converted into equity or written down/off at that time is, because customary measures to improve CSG's capital adequacy are at the time inadequate or unfeasible, an essential requirement to prevent CSG from becoming insolvent, bankrupt or unable to pay a material part of its debts as they fall due, or from ceasing to carry on its business;or
(b) customary measures to improve CSG's capital adequacy being at the time inadequate or unfeasible, CSG has received an irrevocable commitment of extraordinary support from the Public Sector (beyond customary transactions and arrangements in the ordinary course) that has, or imminently will have, the effect of improving CSG's capital adequacy and without which, in the determination of the Regulator, CSG would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due or unable to carry on its business.

The key language being in Viability Event of “CSG has received an irrevocable commitment of extraordinary support from the Public Sector … without which, … CSG would have become … unable to carry on its business”

To support the write-down determination, permission was given to the regulator to exercise it in a law enacted on Sunday 19 March 2023 (footnote 2) which stated:

Art. 5a Additional Tier 1 capital
At the time of the credit approval in accordance with Article 5, FINMA may order the borrower and the financial group to write down additional Tier 1 capital

The German version (footnote 3) had a little more detail:

Artikel 5a Zusätzliches Kernkapital
Die Bewilligung des Verpflichtungskredits zur Gewährung eines Liquiditätshilfe-Darlehens mit Ausfallgarantie soll dazu dienen, existenzbedrohende Folgen auf die Kapitalausstattung der SIB abzuwenden und somit die Fortführung der Geschäftstätigkeit der Darlehensnehmerin und der Finanzgruppe in massgeblichem Umfang zu unterstützen. Folglich stellen der dafür erforderliche Verpflichtungskredit und die Gewährung der Liquiditätshilfe-Darlehen mit Ausfallgarantie eine entscheidende staatliche Unterstützungsmassnahme zur Abwendung einer Insolvenz und damit eine staatliche Hilfeleistung zugunsten der betroffenen Bank dar.
Vor diesem Hintergrund kann die FINMA ab Zeitpunkt der Bewilligung über den Verpflichtungskredit die Abschreibung von zusätzlichem Kernkapital anordnen. Anordnungsadressatin können dabei die Darlehensnehmerin und die Finanzgruppe sein. Es liegt im Ermessen der FINMA, die Anordnungsadressatin zu definieren. Eine Anordnung nach Artikel 5a kann auch mit Blick auf ein Übernahme- beziehungsweise Verkaufsszenario erfolgen, wenn ohne diese Übernahme eine Insolvenz unmittelbar erfolgt wäre.

And translated:

The approval of the commitment loan for the granting of a liquidity assistance loan with default guarantee is intended to avert life-threatening consequences for the capitalization of SIB and thus to support the continuation of the business activities of the borrower and the financial group to a significant extent. Consequently, the commitment loan required for this and the granting of the liquidity assistance loan with default guarantee represent a decisive government support measure to avert insolvency and thus government assistance in favor of the bank concerned.
Against this background, FINMA can order the write-down of additional Tier 1 capital from the time the commitment credit is approved. [bold is ours] The addressee of the order can be the borrower and the financial group. It is at FINMA's discretion to define the addressee of the order. An order under Article 5a can also be issued with a view to a takeover or sale scenario if insolvency would have taken place immediately without this takeover.

Other bank AT1 documents have write-down terms such as:

Example 1 - Deutsche

From Deutsche, 14 Nov 2022, EUR 1,250,000,000 Undated Non-Cumulative Fixed to Reset Rate Additional Tier 1 Notes of 2022
Upon the occurrence of a Trigger Event, the Prevailing Nominal Amount of the Notes shall be automatically reduced by the amount of the relevant Write-down.
A "Trigger Event" occurs if, at any time, the common equity tier 1 capital ratio pursuant to Article 92(1)(a) CRR or any successor provision thereto, determined on a consolidated basis (the "Common Equity Tier 1 Capital Ratio") falls below 5.125 per cent. (the "Minimum CET1 Ratio").

Example 2 - Barclays

From Barclays, 6 Mar 2023, SGD 400,000,000 7.300 per cent. Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities
A "Capital Adequacy Trigger Event" shall occur if at any time the fully loaded CET1 Ratio (as defined herein) is less than 7.00 per cent. Whether a Capital Adequacy Trigger Event has occurred at any time shall be determined by the Issuer and such determination shall be binding on the Trustee and the Holders.
If a Capital Adequacy Trigger Event occurs, then an Automatic Conversion will occur on the Conversion Date at which point all of the Issuer's obligations under the Securities (other than the CSO Obligations, if any) shall be irrevocably and automatically released in consideration of the Issuer's issuance of the Conversion Shares to the Conversion Shares Depository (or to the relevant recipient in accordance with the terms of the Securities) on the Conversion Date at the Conversion Price, and under no circumstances shall such released obligations be reinstated.
Risk Factors
In addition, [bold is ours] the Banking Act grants the power to the Resolution Authority to permanently write-down, or convert into equity, Tier 1 capital instruments (such as the Securities), Tier 2 capital instruments and internal eligible liabilities at the point of non-viability of the relevant entity and before, or together with, the exercise of any resolution powers conferred by the SRR (except in the case where the bail-in tool is to be utilised for other liabilities, in which case such capital instruments or internal eligible liabilities would be written down or converted into equity pursuant to the exercise of the bail-in tool, as described above, rather than the mandatory write-down and conversion power).

Regulators in the UK and EU have made public announcements to the effect that they would not use the same mechanism as the Swiss. However the cat is out of the bag and it will take a long time to regain investor confidence.

For further information, please contact your Semeris representative.


  1. 16 June 2022 Offering Circular for U.S.$1,650,000,000 9.750 per cent. Perpetual Tier 1 Contingent Write-down Capital Notes
  2. Ordinance on Additional Liquidity Assistance Loans and the Granting of Federal Default Guarantees for Liquidity Assistance Loans from the Swiss National Bank to Systemically Important Banks which amended the 16 March 2023 ordinance
  3. 16 and 19 March 2023 Verordnung über zusätzliche Liquiditätshilfe-Darlehen und die Gewährung von Ausfallgarantien des Bundes für Liquiditätshilfe-Darlehen der Schweizerischen Nationalbank an systemrelevante Banken
  4. Header image generated using OpenAI's DALL-E, with prompt "beautiful post apocalyptic landscape, bank building, surreal painting"