Revisiting AT1 Bonds And Navigating Waterfalls Going Forward

RegCORE Client Alert | Banking Union

Revisiting AT1 bonds and navigating waterfalls going forward

QuickTake

Switzerland boasts at least 150 named significant waterfalls, including Europe's largest. Most Swiss waterfalls flow peacefully and in a set direction. Contractual waterfalls are supposed to be contractually clear, certain and navigable in their provisions, in particular as to who gets paid, when and ahead of whom and in what order depending on various trigger events.

As this Client Alert went to publication on 20 March 2023, following the wake of the largest-ever merger in the Swiss banking sector, holders of Additional Tier 1 (AT1) bonds around the globe, were assessing how contractual waterfalls were flowing perhaps differently to what they had expected. AT1 bonds have a central role for banks balance sheets as well as for institutional investors who assume the risks involved in these regulatory capital ¹ instruments.