Document ID: chunk:federal_register_of_legislation:F2023L00684:body:0:p35
Version: federal_register_of_legislation:F2023L00684
Segment Type: other
Provision Reference: 
Character Range: 88066–90773

off. This would be subject to any requirements for conversion or write-off of Tier 2 Capital instruments required to be undertaken on a Level 1 basis.
 3. Where a Tier 2 Capital instrument provides for a write-off mechanism, this mechanism must be structured so that:
     1. the claim of the instrument on liquidation of the issuer is reduced to, or below, the value of the written-off instrument;
     2. the amount of the instrument that may be paid if a call is exercised is irrevocably reduced to the value of the instrument after write-off;
     3. there is an immediate and unequivocal addition to the Common Equity Tier 1 Capital of the regulated institution; and
     4. the distribution/payments payable on the instrument must be permanently reduced (i.e. distributions/payments must be calculated at no more than the rate set for the written-off value of the instrument).
 4. The instrument must not include a mechanism that would require a holder to sell the instrument to the issuer or a related entity of the issuer other than as part of a call option or redemption of the instrument. A mechanism that requires a holder to sell the instrument to a nominated party other than the issuer or related entity of the issuer will not constitute an incentive to redeem provided there is at least two years from the date upon which the holder is required to sell the instrument to the nearest subsequent date upon which conversion may be exercised.
 5. Where an instrument is drawn down in a series of tranches, it must meet the requirements in this Prudential Standard as if each tranche is a separate Tier 2 Capital instrument in its own right and the minimum original maturity of each tranche must be five years from the time proceeds of the issue are irrevocably received by the issuer.
 6. The documentation of any debt instrument or any other capital instrument of the issuer of a Tier 2 Capital instrument must not include any of the following clauses:
     1. a cross-default clause linking the issuer's obligations under the Tier 2 Capital instrument to default by the issuer under any of its obligations, or default by another party (related or otherwise) under the debt instrument or other capital instrument; or
     2. an event of default clause specifying an event relating to the Tier 2 Capital instrument that brings the issuer into default under the debt instrument or other capital instrument.
 7. For the purposes of paragraph 35(b), an event of default clause includes a clause specifying the following events:
     1. the exercise or non-exercise of discretions within the Tier 2 Capital instrument;
     2. an adverse event or change, however so described or determined, occurring