AIB to bolster capital with inaugural AT1

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By Alice Gledhill

LONDON, Nov 25 (IFR) - Allied Irish Banks (EUREX: 558453.EX - news) is hoping to capitalise on the success of a recent Tier 2 deal, mandating banks for an inaugural Additional Tier 1 bond that will further strengthen its balance sheet.

The bank is looking to raise 500m from the transaction, which could emerge as soon as Thursday.

The Irish lender sold 750m of Tier 2 bonds last Thursday on books of more than 5bn from some 310 accounts.

While the issuer is not obliged to raise the capital before year-end, it is seeking to build on the strong momentum of that Tier 2 trade after meeting investors on a recent roadshow.

"The market is good and the Tier 2 worked well. As people were giving orders on the Tier 2 they were reversing into the Additional Tier 1, so we know where investors want to see it come," said one lead manager.

Both bonds form part of the Irish lender's capital plan agreed with regulators.

The response to the Tier 2 served as a strong endorsement of the positive trajectory of AIB's credit story, its chief financial officer Mark Bourke said.

That bond, a 10-year non-call five-year deal, has performed well since pricing and was bid at mid-swaps plus 380bp on Wednesday morning, according to Eikon data, having priced at plus 395bp.

AIB said last Tuesday that it had generated more capital, reduced its bad loans and increased its net interest margin in the third quarter. Its fully loaded Common Equity Tier 1 ratio had improved by 90bp in the quarter to 9.2%.

The new Additional Tier 1 bonds will be temporarily written down if the bank's CET1 ratio falls below 7%.

The Irish lender won regulatory approval earlier in November to return 1.7bn of bailout funds, beginning the process of repaying the 21bn it received during the crisis. In total, the state will receive close to 4bn ahead of a potential initial public offering.

Deutsche Bank (Other OTC: DBAGF - news) and Morgan Stanley (Xetra: 885836 - news) are joint structuring advisers, together with Bank of America Merrill Lynch, Davy, Goodbody and HSBC as joint leads. (Reporting by Alice Gledhill, Editing by Helene Durand, Julian Baker)