Expanding our platform to release supplementary Tier 1 bonds
Deutsche Bahn AG, the German national railway company, has announced its intention to issue Additional Tier 1 (AT1) capital instruments. The issuance, which is subject to market conditions, will be of benchmark size and is planned to further strengthen the company's financial position.
The new securities will be issued under "Regulation S" of the Securities Act, meaning they will not be registered under the Securities Act of 1933, as amended. Consequently, the securities may not be offered, sold, or delivered within the United States without registration under the Securities Act or an exemption from registration requirements.
The securities, denominated at €200,000, will support Deutsche Bahn AG's Tier 1 leverage ratio and its Pillar 1 and 2 AT1 requirements. The first call date for the issuance has been set for October 30, 2031, although a recent change has been made, shifting it to November 1, 2031.
Deutsche Bahn AG will act as the sole bookrunner for the placement, underscoring the company's commitment to the issuance. The authorization for the issuance was granted by the Annual General Meeting in 2022.
AT1 bonds, a type of contingent convertible bond issued by banks, are designed to absorb losses if a bank's capital falls below a certain threshold. They are typically perpetual and have a lower credit rating than senior bonds due to their riskier nature. In times of financial stress, they convert into equity or are written down, such as when a bank requires government support.
The issuance of AT1 bonds is heavily regulated and must comply with financial regulations such as Basel III, which mandates that banks maintain a certain level of capital to ensure stability. However, investors in AT1 bonds face significant risks, as seen in the case of Credit Suisse, where $17.2 billion in AT1 bonds were written down due to government support being deemed a "viability event."
The market for AT1 bonds remains active, with a significant portion of issuance being investment-grade. However, the regulatory environment and market conditions can impact investor appetite and pricing. Banks issuing AT1 bonds are seeking to strengthen their capital positions while maintaining flexibility under regulatory frameworks.
The success of Deutsche Bahn AG's issuance will depend on investor confidence in the company's financial health and the broader market conditions for AT1 bonds. The issuance could help Deutsche Bahn AG enhance its capital base, which is crucial for meeting regulatory requirements and improving its financial resilience.
[1] "Credit Suisse AT1 Bond Write-Down: What It Means for Investors," The Balance, 2023,
The AT1 capital instruments issued by Deutsche Bahn AG will support the company's Tier 1 leverage ratio and fulfill its Pillar 1 and 2 AT1 requirements, as stated in the planned issuance. These securities are intended to further strengthen Deutsche Bahn AG's financial position, although investors should be aware of the significant risks associated with AT1 bonds, as demonstrated in the case of Credit Suisse.
