Hybrid Securities (eBook)

Dr Marcin Liberadzki is a Senior Lecturer at the Warsaw School of Economics, Department of Finance. He holds master's degrees in Finance and Banking (from the WSE), and in Law (the University of Warsaw, Faculty of Law), as well as PhD in Economic Science from the Warsaw School of Economics. He conducts research on convertible bonds, credit derivatives, sub-prime crisis, project finance and public-private partnership in the financing of infrastructure. After passing the Law Society examinations Marcin has been made a legal adviser and advocate. He runs his own law firm in Warsaw, Poland. He is author and co-author of over 30 scientific articles and 3 books. Dr Kamil Liberadzki was awarded a PhD in Finance from the Department of Banking, the Warsaw School of Economics. He graduated within the Finance and Banking Faculty at the WSE and from the Law Faculty at Warsaw University. He is Senior Lecturer in the Institute of Finance at Warsaw School of Economics and lectures on investment banking, investment portfolio modeling, bonds and hybrid securities and financial mathematics.His expertise surrounds fixed income securities, including issue structuring, risk management and pricing. He is also a partner at a legal firm delivering expertise to among the largest Polish banks and financial institutions.

PREFACE1.THE DEFINITION OF HYBRID SECURITIES91.1. Introduction1.2. Core features of hybrids2.EVOLUTION OF HYBRIDS2.1.Preferred shares2.2.Perpetual bonds2.3.Subordinated bonds2.4.Convertible bonds2.5.Reverse convertible bonds2.6.Mandatory convertible bonds2.7.Catastrophe (CAT) Bonds and Catastrophe Mortality (CATM) Bonds2.8.Basel I and Basel II capital instruments2.9.Solvency I capital instruments2.10.Basel III capital instruments2.11.Bail-in bonds2.12Comparison of different conversion into equity mechanisms2.13 Conclusions3.LEGAL FRAMEWORK FOR FINANCIAL HYBRIDS IN THE BANKING INDUSTRY3.1. Transposition of Basel III3.2.Bank Resolution and Recovery Directive3.3.Banking Union framework4.CRD IV/CRR PACKAGE LEGAL FRAMEWORK4.1.Overview4.2.Common Equity Tier 1 financial instruments4.3.Deduction mechanism5.CRR ADDITIONAL TIER 1 FINANCIAL INSTRUMENTS5.1.General remarks5.2.Maturity5.3.Deferral5.4.Subordination5.5.Contingent conversion and write-down6.CRR TIER 2 BONDS6.1.General remarks6.2.Maturity6.3.Regulatory amortization of T2 financial instruments6.4.Deferral6.5.Subordination6.6.Contingent conversion (write-down)7.THE ROLE OF HYBRID SECURITIES IN THE BRRD7.1.Overview7.2.Early intervention measures7.3.Resolution7.4.Bail-in tool8.HYBRID SECURITIES ISSUED BY INSURERS8.1.General remarks8.2.Tier 1 hybrid securities8.3.Tier 2 and Tier 3 hybrid securities9.CORPORATE HYBRIDS9.1.Characteristics of corporate hybrids9.2.Monetizing treasury shares of MOL through issue of perpetual exchangeable bonds via magnolia finance ltd ('Transaction')10.ISSUANCE OF HYBRIDS11.PUBLIC OFFERING AND ADMISSION TO TRADING11.1.Overview11.2.Scope of the Prospectus Directive11.3.Financial hybrids as 'non-equity securities'11.4.Obligation to publish a prospectus11.5.Stand-alone issue vs. debt programme11.6.Responsibility attached to prospectus11.7.Disclosure requirements12.REGULAR AND TIMELY ONGOING DISCLOSURE8612.1.Overview12.2.Transparency Directive13.FINANCIAL INTERMEDIATION13.1.Overview13.2.MiFID13.3.MiFID II/MiFIR14. NON-EEA COCOS14.1. Overview14.2 Switzerland14.3. The United States14.4. BRASIL14.5.CHINA14.6.BASEL III-COMPLIANT SUKUK15.BONDS CREDIT RISK MODELING15.1 Introduction15.2 Bond pricing – stochastic approach15.3 Credit spreads15.4 The probability of default16.CONTINGENT CONVERTIBLE BONDS PRICING16.1. Introduction16.2. Assets dynamics modeling16.3. CoCo pricing with a binomial model16.4. Credit derivatives method16.5.Equity derivatives method16.6.The Deutsche Bank CoCos pricing – a case study17.STRUCTURAL MODEL FOR CORPORATE HYBRID VALUATION17.1. The model17.2. Last maturity case17.3. Valuation of deferrable couponsAppendix18.HYBRID SECURITIES' IMPACT ON RISK18.1 Overview18.2. Impact of new CoCos on issuer's solvability18.3. Introduction to market contagion18.4.Market contagion – definitions18.5.A framework for market contagion modeling18.6.Contagion at the bond marketREFERENCES