Clarification regarding exemptions for tap issuances of eligible liabilities

News 26 huhtikuuta 2024

The Debt Office will adhere to statements published by the European Banking Authority (EBA) clarifying the terms for conducting tap issuances of eligible liabilities instruments.

In order to conduct MREL tap issuances, an issuer needs to be able to demonstrate that the reset mechanisms applying at the call date do not give rise to incentives to redeem. The EBA’s statements on the matter, as set out in the Monitoring Report EBA/REP/2023/23, together with Commission Delegated Regulation EU 241/2014, clarify how market participants need to act to avoid such incentives arising.

Incentives to redeem can arise for issuances that have a call option, with associated reset mechanisms, which leads to a higher yield on the bond upon reset. In such a situation, incentives increase for an issuer to redeem/repurchase the bond at the exercise date of the call option (the call date).

Tap issuances follow the same final terms as in the original issuance. However, the issue price – and thus the yield – in each tap, may differ from the original issuance. An issuer needs to conduct tap issuances at levels that do not create incentives to redeem. The issuer shall be able to demonstrate this on the request of the Debt Office and/or Finansinspektionen.