UniCredit Defies Coupon Furor With Popular $2 Billion Bond

UniCredit SpA carried out a $2 billion bond sale that saw robust demand, helping the Italian lender move on from this week’s furor over a missed coupon payment.

The Milan-based bank priced the two-part offering of senior notes after pulling in more than $8 billion of demand from about 200 investors, the majority coming from North America. The strong order book helped the bank cut the initial spread offered by 25 basis points.

The bonds sold on Wednesday were in a senior preferred format, making them less risky than the complex, deeply subordinated CASHES bonds. The deal shows investors were willing to look beyond UniCredit’s decision not to pay the coupon on so-called CASHES bonds and the ensuing confusion over an accidental transfer of some funds by Euroclear.

It’s good news for new Chief Executive Officer Andrea Orcel, who still faces ire from investors just weeks into his tenure.

“The bank could have taken a friendlier approach, but it didn’t do anything wrong,” said Stefano Girola, a portfolio manager at Alicanto Capital SGR in Milan, which owns some of the bank’s bonds. The sale “shows the CASHES episode hasn’t hurt its reputation or changed investor decisions.”

Banks’ senior preferred bondholders are ranked much higher in the capital structure than investors in subordinated notes, which are first to be wiped out if a lender runs into serious trouble. The terms of the senior bonds are also much simpler than those of the CASHES, short for Convertible and Subordinated Hybrid Equity-Linked Securities, issued in 2009 to strengthen UniCredit’s capital in the wake of the financial crisis.


For the relatively small number of investors who were expecting a coupon payment on the 30 million euros ($37 million) on the CASHES, UniCredit’s position that it was entitled not to pay on the grounds that the bank made a loss last year came as a U-turn. Some investors said they plan to steer clear of other UniCredit debt.

UniCredit Defies Coupon Furor With Popular $2 Billion Bond

Federated Hermes, which has a holding of the CASHES bonds at the center of the dispute, did not even consider participating in the dollar issue, according to Filippo Alloatti, a senior credit analyst at the firm.

Days after the coupon decision was announced, it emerged that some holders had in fact received notice of payment, which turned out to be an error by Euroclear. The firm, which specializes in the settlement of securities transactions, is now seeking to reverse the credits.

For Orcel, the bond sale adds to signs that the damage from CASHES may remain limited to the sub-set of investors who were direct participants.

“We are not involved in the CASHES so don’t really have much of an axe to grind,” said Andrew Fraser, head of financials credit research at Aberdeen Standard Investments. “You can argue about poor communication for sure, as well as not respecting the capital structure hierarchy by continuing with its planned share buyback, but this doesn’t really change our long-term view of the bank.”

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