Barclays markets new bond to beef up capital

By Aimee Donnellan

LONDON, Nov 12 (IFR) - Barclays (LSE: BARC.L - news) began testing investor interest on Tuesday for a US dollar perpetual non-call five-year bond in the low 8%s, as part of plans to beef up its leverage ratio.

The UK bank wasted little time in accessing the public market, having only finished a global investor roadshow on Monday, with its own investment bank acting as sole bookrunner and structuring adviser. Citigroup (NYSE: C - news) , Deutsche Bank (LSE: 0H7D.L - news) , Goldman Sachs, SMBC Nikko, and UBS (Xetra: UB0BL6 - news) are acting as joint lead managers.

The deal is a perpetual callable at par in December 2018 and every five-year anniversary thereafter, offered in benchmark size and SEC-registered format.

It will be converted to equity if the bank's fully-loaded common equity tier 1 ratio falls below 7% on a quarterly basis.

The fully-loaded trigger means the bank's GBP7.6bn of goodwill capital, which currently acts as part of its loss-absorbing cushion, will not be counted towards the capital buffer for this deal.

At 7%, the trigger is much riskier for investors than the 5.125% required under Europe's new Basel regulatory requirements. This was also demanded by the UK's Prudential (Berlin: PRU.BE - news) Regulatory Authority (PRA).

Like many other European banks, Barclays is raising capital to meet the required 3% target for its leverage ratio. That ratio stayed at 2.2% in the third quarter, even though Barclays (Berlin: BCY.BE - news) shed more than EUR100bn in assets and completed a GBP5.95bn rights issue.

It is undertaking a series of measures to meet the 3% target by the June 2014 deadline set down by the PRA.

The Barclays CoCos sold last November and in April this year are likely to provide relevant pricing markers for the upcoming deal. The 2022 bullet notes were quoted at 6.96%, and the 2023 notes callable in 2018 were quoted at 6.11% on a yield-to-call basis.

The new bond is rated B+/BB+ by S&P and Fitch.