CASA £500m AT1 exchange beats expectations

Crédit Agricole SA (CASA) achieved a participation rate of around 80% in a novel one-for-one exchange offer for holders of a £500m (€582m) Additional Tier 1 in June, with the majority of investors keen to switch from a Libor to a Sonia instrument and comfortable moving into the new CRR-compliant AT1.

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CASA launched the exchange offer for the 7.5% perpetual non-call June 2026 AT1 — issued in 2014 — on 20 May. Investors were invited to exchange into a new instrument with substantially similar terms and conditions — such as the coupon to the first call, call dates, equivalent margin at reset — incorporating Sonia rather than Libor language and, unlike the outstanding bond, fully CRR-compliant.

“We decided to launch an exchange offer on our £500m AT1 to tackle both the transition from Libor to Sonia and the ineligibility of the existing instrument post grandfathering on 28 June 2025, a year earlier than its first call date,” said Nadine Fedon, head of group funding at Crédit Agricole. “Investors responded extremely positively to the offer and we are glad the result was so positive.”

In light of the end of the Brexit withdrawal period at the turn of the year and the requirement for Eurozone sterling AT1s to have contractual bail-in recognition, CASA’s outstanding bond will lose AT1 treatment in June 2025, which will constitute a capital event, meaning a regulatory call could apply.

CASA decided to tackle this in the exchange in conjunction with the Libor to Sonia switch on the back of growing clarity over the transition in the reference rate in the preceding months. UK issuers have addressed the Libor issue via consent solicitations since late last year, but the process was not feasible under the documentation of CASA’s sterling AT1, prompting it to come up with the unusual one-for-one exchange.

Investors who submitted their bonds by an early participation deadline of 4 June were eligible for a 10 cents fee, and CASA received orders up to £383.445m during this period, with a further £13.239m submitted before the final deadline of 28 June, for a total of £396.864m — leaving £103.316m of the old AT1 outstanding. CASA had set a £250m threshold as a condition of issuing the new bond, but had reserved the right to waive this requirement.

According to Doncho Donchev, DCM Solutions, Crédit Agricole CIB, the “tremendously high” participation rate exceeded expectations. He noted that although some accounts were happy to retain the high coupon bond in anticipation of a potential call in June 2025, the majority committed to the new instrument.

“Investors were very happy to own this bond and maintain exposure to the Crédit Agricole name,” said Donchev, adding that the scarcity of CASA paper in sterling and its investment grade ratings supported demand.

Véronique Diet Offner, co-head, DCM solutions and advisory, CACIB, said the importance of the transition from Libor to Sonia for many investors was a further key factor in the high level of participation in the exchange.

“We had a lot of interaction with investors keen to understand the drivers behind the exercise,” she said. “They appreciated the issuer’s commitment to tackling the Libor transition and to do a meaningful trade in creating a fully-compliant AT1 instrument.”

She said the high level of participation during the early bird period encouraged further participation from some investors in the remaining period of the exchange, even if the early participation fee was no longer available, because remaining holders could see that the liquidity of the new instrument would be superior to the old.