Consent solicitation to introduce a contractual recognition of bail-in in Terms of Conditions (T&Cs) of capital instruments and MREL eligible liabilities

Would a consent solicitation to amend the T&Cs of a capital instrument (AT1, Tier 2) or MREL eligible liability (Senior Non Preferred, Senior Preferred or Senior HoldCo) in order to introduce a contractual recognition of bail-in be deemed a ‘material change’, in which case the amended instrument would be deemed as a new issuance?

CRR 2 requires AT1 and Tier 2 to feature a contractual recognition of bail-in when issued under a non-EU governing law. For example, Art. 52(1) / Art 63: “(…) where the issuer is established in a Member State, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in Article 59 of that Directive, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments” Similarly, BRRD Art. 55 confirms that MREL Eligible Liabilities (Senior Non Preferred, Senior Preferred or Senior HoldCo) should include a contractual recognition of bail-in powers to ensure its ability to absorb losses in resolution and thus be eligible for MREL: “Member States shall require institutions and entities (…) to include a contractual term by which the creditor or party to the agreement or instrument creating the liability recognises that that liability may be subject to the write down and conversion powers and agrees to be bound by any reduction of the principal or outstanding amount due, conversion or cancellation that is effected by the exercise of those powers by a resolution authority, provided that that liability complies with all of the following conditions: (…) (c) the liability is governed by the law of a third country; (…)” In this context, issuers who have outstanding capital instruments that were issued under a third country law (e.g. New York law or English law post-Brexit) before the adoption of CRR2 / BRRD2 or eligible liabilities that were issued under English law (hence a non EU law post-Brexit) may consider amending the T&Cs of their instruments to introduce a contractual recognition of bail-in and thereby ensure compliance with the eligibility criteria for AT1, Tier 2 or MREL eligible liabilities. We note however that the EBA AT1 Monitoring Report of 2018 and the EBA Q&A 2013_16 state that “A material change in the terms and conditions of a pre-existing instrument shall be considered in the same way as the issuance of a new instrument, meaning that the changes shall aim at ensuring a full eligibility under the provisions of Regulation (EU) No 575/2013 (…). This reasoning holds true for all types of capital instruments.”. Taking the example of a 10NC5 Tier 2, this means that a “material change” to the Terms and Conditions done sometime after issuance would render the instrument not eligible anymore for Tier 2 capital because of a first call date before year 5. We therefore ask the EBA to confirm that introducing a contractual recognition of bail-in in the T&Cs of an outstanding AT1, Tier 2 or MREL Eligible Liability would not be deemed a “material change”.