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 pay all accrued coupons to prevent a default.
- The bond is either permanently written down or converted into equity to recapitalize the bank.
- The bond becomes senior to all other debt to protect the holders' principal.
- The maturity of the bond is automatically shortened to one year.
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