Unionbank (UBP)’s Tier 2 notes

The Unionbank of the Philippines (UBP) will be issuing P5 billion worth of unsecured, subordinated Tier 2 notes with a 7.375% net interest rate per annum.

The offer date is up to Tuesday, October 6, 2009 and the issue date is on October 14, 2009.

The company said proceeds from the notes will be used in the expansion of its consumer loans portfolio.

What is a Tier 2 Note?

A Tier 2 Note is a debt obligation issued by a bank usually for the purpose of raising supplementary capital. Tier 1 capital, on the other hand, refers to common and preferred stock issuances and retained earnings.

What is an Unsecured and Subordinated security?

An unsecured security means it is not backed by any collateral. That means no specific asset of the company is pledged in support of the debt obligation. A subordinated debt has a lower priority than other bonds in case the company files for bankruptcy and is liquidated. They are subordinated in the right of payment of principal and interest to all depositors and other creditors of the bank.

Is this investment covered by the PDIC?

Tier 2 notes are debt security investments and not regular bank deposits, which means they are not covered by the Philippine Deposit Insurance Corporation (PDIC). However, credit rating company Fitch Ratings recently gave the notes a rating of “A” which generally means UBP’s Tier 2 notes are of investment grade.

What are the terms of Unionbank’s Tier 2 Notes?

• Coupon rate: 7.375% net interest per annum payable quarterly
• Tenor (Holding Period): 10 years, callable after 5 years and 1 day
• Minimum investment: P500,000, additional investments in increments of P100,000

Uniobank has the option to call the notes at the end of the fifth year. If not called, the Tier 2 notes will pay a step-up rate for years 6 to 10.

How can I invest in UBP’s Tier 2 Notes?

Approach your bank or investment bank and ask if they offer the notes. Alternatively, leave your information in our Contact Form and an authorized Unionbank representative will contact you. Please indicate your name, email address, telephone number, best time to call, and possible amount of investment. Note that the final offering date is on October 6, Tuesday, or even earlier if all the notes have been subscribed.