Hedge funds and other holders of $17bn of Credit Suisse bonds wiped out in UBS deal
Hedge funds and other holders of $17 billion of Credit Suisse bonds have seen their investments wiped out completely under the terms of the bank's $3 billion acquisition by rival UBS, according to a report by the Financial Times.
As part of the deal, Swiss financial regulator Finma ordered that SFr16bn ($17bn) of Credit Suisse’s additional tier 1 (AT1) bonds, a relatively risky class of bank debt, must be written down to zero to add roughly $16 billion of equity to support UBS’s takeover.
In a statement, Finma said: “The extraordinary government support will trigger a complete writedown of the nominal value of all AT1 shares of Credit Suisse in the amount of around SFr16bn, and thus an increase in core capital.”
Investors in Credit Suisse's ordinary bonds – debt that the bank borrowed at a fixed rate of interest to be paid back over a specified period of time – look set to fare better, according to a report by the New York Times, with the bonds having at one point at the end of last week traded at around 60 cents on the dollar before rising sharply when news of the UBS deal broke.
According to unnamed NYT sources, Redwood Capital Management and 140 Summer were among the funds that reportedly bet on the rescue deal while Goldman Sachs, Jefferies and Morgan Stanley were among the banks facilitating the trades between investors.