hard · Debt Capital Markets bond-instruments-structures
A bank's Additional Tier 1 (AT1) bond is structured with a Common Equity Tier 1 (CET1) trigger of 5.125%.
If the bank's CET1 ratio falls from 7.00% to 4.50%, what is the primary consequence for the AT1 bondholders?
- The bank must immediately settle every accrued and unpaid coupon to avert an outright default event.
- The bond is either permanently written down or converted into equity to recapitalize the bank.
- The bond instantly leaps ahead of senior debt to shield the holders' principal.
- The stated maturity of the perpetual bond is automatically shortened to a single year.
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