Macquarie Bank launched a new hybrid earlier this month and planned to raise at least $400m, for ‘general corporate purposes’ with the capacity to accept more. It raised $425m at a margin 290 basis points (2.9%) over 3 month BBSW. The hybrid will trade under (ASX:MBLPB) and is expected to begin trading on 25 March 2020. With 3 month BBSW approximately 0.6%, its yield for the first quarter is expected to be around 3.5%pa.
The hybrid has its first optional exchange date on 21 December 2025 and mandatory conversion is scheduled for 21 December 2028. This is the first date at which NAB can exchange all or some of the securities assuming there is no prior ‘trigger’ event. Exchange, in the context of listed hybrids, can mean redeem, resell to a third party or convert into ordinary shares.
There is no offer to the general public for the new hybrids. The offer is open to: eligible shareholders, holders of Macquarie Bank’s Capital Notes (ASX:MBLPA) who were registered on or before 7 February 2020, institutional investors and clients of joint lead managers, co-managers and syndicate brokers to the issue via the ‘broker firm’ offer.
The MBLPB will contribute to Macquarie’s Additional Tier 1 capital requirement and has the following characteristics:
- Non-cumulative distributions can be missed and never have to be made up. In this instance the bank must cease dividends on its shares, this is known as a ‘dividend stopper’ clause
- Capital trigger at 5.125%, if breached then requires an early conversion to shares or can be written down/off at APRA’s discretion
- Non viability trigger at APRA’s discretion and converts to shares or can be written down/off to support the survivability of the bank
- In the event the bank is wound up and APRA had not already forced a write off due to one of the trigger events above, the hybrids would rank below bank bonds and other creditors in line for repayment but above shareholders
Hybrids are complex securities, do not invest unless you understand the terms above and the risks involved.