Allen & Overy has advised Nationwide Building Society on the creation and inaugural issuance of GBP500 million Core Capital Deferred Shares (CCDS), a mutual-friendly capital raising instrument designed to meet the requirements of UK and European authorities under the new regulatory capital regime.

The issuance was significantly oversubscribed. The managers were Bank of America Merrill Lynch, Barclays, JP Morgan Cazenove and UBS. Nationwide was advised by Rothschild.

The transaction is the latest innovation in financial capital as issuers seek to meet new regulatory requirements for core capital. Traditionally building societies have had access to inorganic capital, through Permanent Interest Bearing Shares (PIBS). These instruments have since become redundant in respect of future issuance under current regulatory capital requirements and Nationwide developed CCDS as a replacement and new form of mutual-friendly capital that contributes to the sustainability of the mutual model.

Capital markets partner Jonathan Mellor commented: “CCDS give mutuals the ability to issue inorganic Common Equity Tier 1 capital, without compromising the status and business model of a mutual. As a building society, the main component of Nationwide’s core capital is generated from retained earnings, a position the society does not expect to change in the future. However CCDS now give Nationwide the option to raise additional capital whilst preserving the principles of mutuality.”

Corporate partner Richard Slynn added: “This is an important step for Nationwide and potentially for mutual societies in general. The Building Societies Association has been involved in the project throughout and they welcome this innovation in the sector.”

Partners Jonathan Mellor and Richard Slynn led on the deal, together with partners James Roe and Roger Wedderburn-Day, assisted by senior associate Daniel Fletcher and associates May Chiu, Corrina Conroy, Karishma Naravane, Eimear Coady and Thomas Mathew. Partners David Hughes and Charles Yorke and senior associate Tim Harrop provided tax advice.