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July 2007

Hybrids: ANZ cuts non-innovative premium

by Alex Chambers and Jethro Wookey

ANZ combined a number of features on its latest tier-1 deal that allowed it to cut the premium an issuer normally pays to access institutional investors without a coupon step-up at the call date. The £450 million ($898 million) tier-1 perpetual paper was ANZ’s first sterling capital security.


As more and more borrowers reach the 15% limit (of total tier-1 capital) for so-called innovative debt – that is, bonds with coupon step-ups – issuing non-innovative hybrids is the only option remaining.

Traditionally only retail investors have felt comfortable with the extension risk that the lack of a coupon step-up at the call date theoretically results in. Over the past three or so years, the sheer depth of demand for credit has encouraged institutional investor to accept this risk. However,...


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