Hengeler Mueller advises Federal Association of German Banks on model terms and conditions for Additional Tier 1 capital instruments and Tier 2 capital instruments

14. April 2014

On 10 April 2014, the German Federal Ministry of Finance (Bundesministerium der Finanzen) announced the tax treatment of Additional Tier 1 capital instruments, in particular of so-called “CoCo”-bonds, based on the model terms and conditions of the Federal Association of German Banks (Bundesverband deutsche Banken, BdB). Especially the deductibility of interest payments on these Additional Tier 1 instruments, as long-awaited by market participants, was finally confirmed.

Hengeler Mueller advised BdB on the structuring of, and drafted, the model terms and conditions for Additional Tier 1 capital instruments and Tier 2 capital instruments in accordance with the new regulatory requirements applicable in the EU since the beginning of the year in accordance with the new definition of own funds under the Capital Requirements Regulation (CRR), implementing Basel III. The model terms and conditions for Additional Tier 1 instruments include two types: a “write down/write up”-instrument providing for a temporary write down of the principal amount upon the occurrence of a common equity tier 1 trigger as well as contingent convertible bonds providing for a conversion in shares in that event.

The Hengeler Mueller team was led by partner Alexander G. Rang (Capital Markets) and included partner Ernst-Thomas Kraft (Tax) as well as counsel Mathias Link (Tax) (all based in Frankfurt).