What are #perpetual #bonds (perps) / additional tier 1 capital?
(1) Perps have no maturity when issued. Theoretically they pay you interest till infinity. (1/n)
(1) Perps have no maturity when issued. Theoretically they pay you interest till infinity. (1/n)
(2) Practically, these bonds have something called as a call option. so when the issuer (lets say, yes bank) wants to discontinue, it calls the bonds back, pays the par value (generally) and it will be closed. These call dates (when can you call back) are predefined. (2/n)
(3) Generally these call options are typically after 5 years
(4) There is no compulsion on the issuer (yes bank) to call back the bonds. Its the issuers choice. If interest rates in the market are lower than what perps offer and they have liquidity, they might call back. (3/n)
(4) There is no compulsion on the issuer (yes bank) to call back the bonds. Its the issuers choice. If interest rates in the market are lower than what perps offer and they have liquidity, they might call back. (3/n)
(5) Perps are unsecured and in an event of liquidation, they are only paid if there is any money left after paying depositors and other bond holders but before preference shares and equity. (3/n)
(6) It is also nt compulsory 4 the bank to pay the yearly coupon. If da bank made a loss 4 the FY n there r no free reserves to dip into, bank can decide nt 2 pay the interest n its nt a default. Also da interest that da bank dint pay last FY does nt get accumulated 4 da next FY.
(7) Because of all of the above, perps are generally rated 1-2 notches lower than the long term rating of the issuer and pays a higher coupon. (End)
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