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Hybrids: Long-awaited Munich Re tier 1 appears

The hybrid sector’s focus might be turning to Asian retail but as Euromoney went to press Munich Re announced an interesting €1 billion benchmark hybrid transaction – rated A3 (Moody’s)/ A (S&P)/A+ (Fitch) – with Deutsche Bank, JPMorgan and UBS as bookrunners.

"It is Munich Re’s first deal of this nature. The company issued dated subordinated debt in 2003 in a size of €3 billion," says Frank Kennedy, head of the European financials institutions group at UBS DCM.

UBS acted as structuring adviser on the transaction, which takes the form of a direct issue, for which the borrower has obtained a tax ruling from the German authorities. Although the deal is undated subordinated debt under the current capital regulations, it should meet future tier 1 requirements as the structure qualifies under the UK Financial Service Authority’s rules and therefore should be eligible under Solvency II. The FSA is way ahead of other European regulators in establishing regulations for insurers, consequently insurers such as Allianz and Swiss Re have structured deals to meet the UK policy.

"Munich Re is less leveraged than its peers, and the market believed that it would make sense for the company to do a new hybrid; with a large dated subordinated outstanding, the logical step was an undated subordinated deal, ticking the key boxes from a regulatory and ratings perspective," says Prasad Gollakota, capital products, UBS DCM.

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