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Days After Issuance, UBS Purchases Bonds To Bolster Investor Confidence

Days After Issuance, UBS Purchases Bonds To Bolster Investor Confidence
In an effort to reassure bondholders shaken by its $3 billion rescue of rival Credit Suisse, UBS Group announced on Wednesday that it would buy back 2.75 billion euros ($2.96 billion) in debt that it had just days earlier sold.
The bonds were sold on March 9, and UBS's decision to buy them back highlights the lender's efforts to boost confidence following Sunday's government-supported rescue of Credit Suisse.
UBS is compensating investors after a sell-off this week by purchasing the bonds back at the price they were sold for as opposed to market prices.
"They're trying to be friendly to investors who purchased just before the mess," said Jerome Legras, head of research at Axiom Alternative Investments.
In a statement, UBS stated that it was purchasing a 1.5 billion-euro 4.625% fixed-rate note due March 2028 and a 1.25 billion-euro 4.750% fixed-rate note due March 2032.
The notes are senior unsecured bail-in notes that absorb losses.
S&P downgraded the holding company of UBS, the issuer of the bonds, to negative from stable on Monday, citing creditworthiness pressures related to the Credit Suisse deal. S&P's outlook on the operating company remained stable.
This week, UBS shares and bonds have fluctuated as investors assess the impact of the Credit Suisse transaction.
On Monday, the stock fell as much as 17%, only to close 35% higher on Tuesday.
Additionally Tier 1 (AT1 debt), a different type of bail-in debt, took a significant hit on Monday after Credit Suisse's AT1s were written down to zero as part of its rescue. UBS bonds also fell.
Markets were surprised because they are used to seeing bondholders ranked higher than equity holders who are to receive the value of the share offer. However, Credit Suisse AT1 bondholders received nothing, which the bank's AT1 prospectus stated could happen in Switzerland.
Bond prices that UBS is repurchasing on Wednesday also fell on Tuesday before partially recovering.
After the announcement on Wednesday, they rallied even more. As prices on both bonds climbed toward the levels UBS is offering to pay bondholders, the price of the March 2032 bond increased by just under a point on the day, according to Tradeweb data.
"The issuer has decided to launch this exercise as a result of a prudent assessment of these recent developments and the issuer's long-term commitment to its credit investors," UBS said in its statement.
According to a banker involved in the sale of the bonds, who spoke on the condition of anonymity, the buyback was "fair" given the market turbulence that has existed since the bonds were sold.
After rising as much as 3.6%, UBS shares last traded down 2.3% at 18.97 Swiss francs ($21.05).

Christopher J. Mitchell

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