Allens acts on first wholesale Tier 2 issue under new Basel

Allens has advised Bendigo and Adelaide Bank on the first wholesale Tier 2 subordinated note issuance by an Australian domestic bank since the Basel III rules in relation to regulatory capital came into effect.

The deal is expected to be the first of a number of transactions, as other Australian banks look to satisfy their regulatory capital requirements in the wholesale market.

According to lead Partners James Darcy and Mark Malinas, a key feature of Basel III-compliant regulatory capital issuances is the 'non-viability' regime, requiring loss absorption mechanics to be included.

This requires the issuer to convert the instruments into ordinary shares, or write them off, if the Australian Prudential Regulatory Authority determines that a conversion or write-off is necessary, because otherwise the issuer would be non-viable.

According to Mr Darcy, while the Australian market is familiar with the non-viability features of Basel III Tier 2 regulatory capital issuances, such issuances to date have been made in the retail market.

'This deal demonstrates that there is investor support for Basel III-compliant Tier 2 issuances at the institutional level, with the deal well over-subscribed and over 35 investors participating, quelling concerns that institutional investors would not participate in such deals,' Mr Darcy said.

'We are very pleased to have supported Bendigo and Adelaide Bank in structuring a deal which importantly met the requirements of the regulator, received considerable support from the institutional investor community, and was a success for the bank.

'Deals of this nature allow Allens to draw upon its expertise in capital markets and tax to work with issuers and arrangers to navigate issues in an ever-changing regulatory and market environment.

The Allens team included experts from the capital markets and tax teams.

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