From Breakingviews - Swiss CoCo litigation may have a broader payoff
The Helvetia statue is pictured in front of the Swiss Parliament Building, in Bern, Switzerland, March 19, 2023. REUTERS/Denis BalibouseCoCos are shaping up to be the bondholder litigation case of the century. Investors in the bank’s 16 billion Swiss francs of contingent convertible bonds think authorities were wrong to wipe them out as part of a state-sponsored rescue by UBS
That “belt and braces” argument may not deter litigants. They can argue that state support for Credit Suisse did not represent a viability event because the authorities injected liquidity but not capital. Meanwhile, the new law looks a lot like expropriation, which investors can challenge in court. But even if bondholders were to win in court, they might not get a full payout. After all, if Switzerland had applied its resolution framework, the most AT1 bondholders could have hoped to receive was the 3 billion Swiss francs UBS set aside for shareholders. That’s less than 20% of the bonds’ par value.
The Swiss regulator on March 19 wrote down 16 billion Swiss francs of the lender’s Additional Tier 1 debt to zero, even though shareholders received some compensation as part of a 3 billion Swiss franc rescue of Credit Suisse by rival UBS. Some Credit Suisse AT1 bondholders are seeking legal advice.
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