Permanent TSB (PTSB) raised €250 million of capital on Wednesday through the sale of the riskiest form of bank debt, as it seeks to bolster its balance sheet in advance of a takeover of €6.8 billion of Ulster Bank loans.
The so-called Additional Tier 1 (AT1) notes that were sold were priced to carry a coupon – or interest rate – of almost 13.3 per cent. That is up significantly from the 7.9 per cent rate attached to similar bonds it sold in late 2020, largely reflecting how interest rates globally have increased in recent times as central banks hike official rates at pace amid efforts to rein in soaring inflation. PTSB received €620 million of orders for the bonds.
While the Ulster Bank loan deal will increase the size of PTSB’s loan book by close to 50 per cent, the 75 per cent State-owned lender has insisted that it will not need to raise additional equity through the sale of shares to complete the purchase.
Aside from the sale of the AT1 notes, PTSB is part paying for the Ulster Bank assets by way of issuing shares to the latter’s parent, NatWest Group. NatWest will end up with a 16.7 per cent stake.
Meanwhile, it will be able to generate additional capital by acquiring the Ulster Bank assets at a discount to their fair value. It will be booking the difference as a so-called badwill gain, or what’s sometimes referred to as negative goodwill.
“The rationale for issuance is to optimise the bank’s capital structure and fulfilling its current and future capital and MREL requirements, including the acquisition of assets from NatWest and Ulster Bank,” said a spokesman for the bank, which is led by chief executive Eamonn Crowley.
MREL refers to so-called minimum requirement for own funds and eligible liabilities – essentially classes of debt where holders can suffer losses in the event of a bank running into financial trouble.
The spokesman said that Wednesday’s deal “builds on the bank’s track record of successful transactions in the debt capital markets and diversifies further its funding sources and investor base”.
