UBS is giving investors the opportunity to return €2.75bn of senior holdco debt it issued less than two weeks ago, a move which the bank called "prudent" following its takeover of Credit Suisse.
UBS, which was making its second visit to the euro market this year, had pushed for size with the two-part deal on March 9 and saw books pass €7bn at the peak.
"Whilst the issuer has been in compliance with all of its obligations relating to the notes since the issue date, the issuer is offering to purchase the notes at their respective re-offer price in light of the exceptional corporate actions announced on 19 March 2023, shortly after the issue date," the bank said in a statement. "The issuer has decided to launch this exercise as a result of a prudent assessment of these recent developments and the issuer's long-term commitment to its credit investors."
It is not unusual for borrowers to launch liability management exercises to manage debt stacks and smooth out their liquidity profiles, but for UBS the reasons could not be more different given it is buying its rival for US$3.25bn in a deal that will fundamentally reshape the bank.
It is offering to buy back the €1.5bn five-year non-call four and €1.25bn nine-year non-call eight bonds at their respective reoffer prices.
The €1.5bn 4.625% March 2028 priced at swaps plus 115bp, but widened steadily over the course of last week and peaked as high as 293bp on Monday as markets reacted to the acquisition, according to Tradeweb figures. It was bid around 147bp on Wednesday for a price of 99.909, just below the 99.932 reoffer level.
The €1.25bn 4.75% March 2032, which came at 160bp over swaps, peaked at 330bp but has since recovered to 182bp. It was bid on Wednesday at a price of 99.47 versus a reoffer of 99.518.
A banker said that while UBS was under no obligation to launch such a tender, the exercise is intended to be an investor-friendly move, offering an exit to any bondholders that might wish to sell because they are still assessing the situation around the acquisition or are seeking liquidity.
Significant uncertainty remains around the ultimate shape of the merged entity's balance sheet and credit profile. While analysts say the hastily arranged tie-up is a good deal for UBS, they highlight that there will be substantial execution risk.
Rating agencies Moody's, S&P and Fitch accordingly placed their ratings of UBS on negative outlook this week.
However, bankers said the take-up of the tender should not necessarily be read as a guide of investor sentiment towards the merger.
"Given the general market moves and the way things did leg lower there will be people suffering a lack of liquidity on the investor side," said the banker.
"So there may be people participating on the basis they just need funds and this is a guaranteed bid. There may be people that have hedged one way or another so this looks like a nice profit. And there may be people who have just bought lots of Credit Suisse, so might think lightening up a bit helpful. There are a lot of things at play, rather than just people’s view on the acquisition."
Other bankers noted that as Credit Suisse has significant volumes of bonds outstanding - with SFr49bn (US$53bn) of holdco senior debt as of the end of 2022 - investors also holding UBS bonds may face capacity constraints.
Updated story: Adds bankers' comments, updates bond trading levels