It stands for additional tier-1 capital; a layer of capital whereby an entity can absorb losses on a going-concern basis, although its instruments (AT-1 instruments) do not meet all the criteria for common equity tier-1 capital (CET1). AT-1 consists of instruments that are originally not common equity but can be made part of this tier on an eligibility basis (i.e., subject to an eligibility test).
AT-1 consists of paid-up capital instruments and any share premium account associated with these instruments. These instruments are usually issued as hybrid debt instruments (contingent convertibles, CoCo), which can be written down or converted to CET-1 instruments subject to a prespecified trigger event (as in the case the CET-1 capital ratio falls below a minimum level or increases beyond a maximum level (e.g., 5.125%). By nature, AT-1 instruments must not involve any terms or features that could prevent the recapitalization of an entity in the case of a trigger event.
Examples of AT-1 capital include a contingent convertible or a hybrid security, with a perpetual term (characteristics of equity) and can be converted into equity upon occurrence of a trigger event.
