ZKB issues CHF 590,000,000 3.50% Tier 1 Perpetual Subordinated Bonds

On 18 January 2012, Zürcher Kantonalbank (ZKB) launched a CHF 590m 3.50% Tier 1 Perpetual Subordinated Bonds transaction in the Swiss market, placed through UBS AG and ZKB as Joint-Lead Managers. These Tier 1 Perpetual Subordinated Bonds are a novel instrument, in particular providing for a write-down if ZKB’s CET 1 capital falls below 7% of its risk-weighted assets. Their terms comply with the requirements of Basel III as envisaged to be implemented in Switzerland and qualify as Additional Tier 1 Capital under the new Basel III framework. The Tier 1 Perpetual Subordinated Bonds will also be written down at the “point of non-viability”, i.e. if FINMA determines that ZKB requires public sector support to prevent it from becoming insolvent, bankrupt or unable to pay a material amount of its debt or similar circumstances. Since Swiss law does not provide for a concept of a unilateral waiver of a right (Forderungsverzicht), the write-down mechanism is documented as an agreement between the bondholders and ZKB that the bondholders’ rights to claim the principal shall be cancelled if and when an event triggering the write-down occurs.

Reference: CapLaw-2012-7