Crédit Agricole £500m AT1 exchange tackles Libor, CRR issues

Crédit Agricole SA (CASA) on 20 May launched a novel one-for-one exchange offer for holders of its £500m (€582m) perpetual non-call June 2026 grandfathered Additional Tier 1 instrument, seeking to replace it with a fully CRR-compliant, state of the art AT1 incorporating Sonia language.

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Financial institutions have been managing the transition from Libor to Sonia of outstanding sterling instruments since 2019, but only began tackling more complex AT1 structures later last year, with Santander UK being the first to gain bondholder approval to amend the terms of its outstanding sterling AT1 accordingly.

Further progress in the transition has meanwhile been made by, for example, the launch of the GBP Sonia ICE Swap Rate in December 2020, while the buyside has called for issuers to step up their efforts.

“The Investment Association’s members are reaching out to issuers to encourage them to put into effect plans to transition these instruments as quickly as possible,” said the industry body in an open letter in February. “This is critical if a broad-based market transition is to be achieved by the deadline outlined by the authorities.”

On top of transitioning the reference rate of capital securities, Eurozone issuers with sterling AT1s are faced with the simultaneous task of tackling non-CRR compliance, since — following the end of the Brexit transition period at the turn of the year — they require contractual bail-in recognition.

CASA’s £500m AT1, for instance, only remains eligible as AT1 thanks to grandfathering treatment, but this will expire from 28 June 2025, a year earlier than its first call date. This change in treatment would constitute a capital event and the issue could then be called at par.

Being CRR-compliant, the French bank’s new fully compliant AT1 offered via the exchange will address this, as well as incorporating language for any reset period.

“Now that an established Sonia methodology is in place, and following the end of the transition period, the issuer is addressing these key issues,” said Doncho Donchev, DCM Solutions, Crédit Agricole CIB, “while taking the opportunity to make other technical amendments to align it with AT1 best practices.”

UK issuers have addressed the reference rate issue via consent solicitations, but the mechanic process was not feasible under the transaction’s documentation, leading Crédit Agricole to come up with the unusual one-for-one exchange.

Holders can exchange their grandfathered AT1 for new CRR-compliant AT1 securities with substantially similar terms and conditions — such as the coupon to the first call (7.5%), call dates, margin at reset (4.535%) — save for the aforementioned technical updates and substitution of Sonia for Libor with the relevant standard spread adjustment of 0.2766%.

The exchange runs until 18 June, although holders can benefit from an early participation amount of 10 cents for instructions received by Friday (4 June). The offer is contingent upon CASA achieving a £250m participation amount, although it has reserved the right to waive this minimum exchange condition.

“The early bird fee compensates investors for the time spent on the analysis, since it is not just the Libor transition we are managing, but also ensuring the new instrument is fully CRR-eligible,” said Véronique Diet Offner, co-head, DCM solutions and advisory, CACIB.

“Early participation will also give the issuer maximum visibility as to the progress of the exchange.”