Rabobank successfully issued a US$ 2bn benchmark hybrid Tier 1 transaction

Rabobank successfully issued a US$ 2bn benchmark hybrid Tier 1 transaction. These capital securities, priced at a coupon of 8.40%, have been designed to comply with current Dutch and European Regulatory requirements (CRD II), and incorporate provisions to address the guidelines issued to date for the upcoming CRD IV regulatory requirements. This is the first hybrid capital transaction of meaningful size since Rabobank’s previous transaction in January 2011.

The transaction is a perpetual instrument with a call after 5.5 years. Similar to the January transaction, the security will permanently write down any losses if Rabobank’s Equity Capital Ratio falls below 8% (14% as of H1 2011). In line with CRD IV capital requirements all coupons on this transaction are fully discretionary and the automatic link between payments and dividends has been removed.

On Monday afternoon, the transaction was announced into the European markets. Despite concerning announcements by the Greek government and ongoing market nervousness around the European debt crisis, by Tuesday morning the order book had grown steadily to $1.5bn. Thereafter, in the midst of severe market dislocation and despite 5%+ equity index falls, by close of business Europe the order book had doubled to over $3bn, with almost 200 investors participating. Further marketing overnight in Asia brought the books to a final amount of over $3.5 billion, split 60% Asia and 40% Europe. A difficult allocation process due to the high oversubscription and strong demand resulted in a transaction size of $2.0bn and a coupon of 8.40%.

This transaction, executed in the middle of one of the most volatile periods in recent market memory, underscores Rabobank’s appeal as a safe haven asset class. Rabobank’s key goal has always been to maintain exceptionally strong levels of capitalisation and to keep Tier 1 ratios above the rest of the financial sector. With this transaction, Rabobank is continuing to strengthen its capital base ahead of the upcoming CRD IV implementation.

Especially given the context of severe market stress, Rabobank has demonstrated unequivocally that it has unparalleled access to capital in large size on a global basis.