Deals of the year 2010: Rabobank €1.25 billion contingent capital notes

In the past couple of years stiffer capital adequacy rules were agreed on as part of Basle III. While the spirit of the accord was about a greater emphasis on pure equity making up most of a capital buffer, there was much discussion about creating forms of debt that were loss absorbing in times of distress. In late 2009, contingent capital, popularly referred to as CoCos, first appeared, when Lloyds Banking Group exchanged existing hybrid debt with these new securities. These instruments came with an explicit trigger where the debt would convert into equity when Lloyds’s tier-1 ratio fell below 5%. Rabobank’s March €1.25 billion 10-year transaction, lead managed by itself, Credit Suisse and Morgan Stanley, was the inaugural primary contingent capital issue.