15 June – 19 June 2015

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Buffet takes 3.7% stake in IAG, forms partnership

Warren Buffet’s Berkshire Hathaway has purchased a 3.7% stake in IAG for $500m and is, in essence, forming an 20/80 joint venture with the general insurance company. Berkshire will take 20% of IAG’s gross written premiums and pay 20% of claims as well paying IAG for its share of operating costs. While seen as a vote of confidence in the company, IAG’s two hybrids, IAGPC and IANG gave back much of the announcement day’s price rise in subsequent trading.

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Bendigo’s new hybrid holders suffer first day losses
Bendigo and Adelaide Bank’s latest hybrid offering (BENPF), the Converting Preference Share 3, debuted last week below its issue price. The hybrids were issued at 180d BBSW + 400bps and are callable in 2021 with a mandatory exchange date in 2023. Investors were sitting on a paper loss of 1.40% at the end of day 1 after the hybrids closed at $98.60. Brokers were surprised at the fall and put the reason down to nervous buyers and a thinly traded market.

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Heritage Bank new style tier 2 notes
Heritage Bank has issued $50m of a new style wholesale tier 2, Basel III compliant notes at BBSW + 350bps. The notes are callable in 2020, have a final maturity date in 2025, are subordinated and contain non-viability triggers in line with Basel III requirements. The new style of hybrid relates to the fact that the notes do not convert into equity in the event that APRA declares the bank non-viable. Rather, the notes will be written off and investors will lose their investment completely. The complexity of this relates to the fact that Heritage is a mutual with no shareholders – it is owned by its depositors. The situation shares some characteristics with the ME Bank issue in August 2014. That tier 2 issue was priced at BBSW + 270 bps and trades lower today. In the event of a non-viability clause being triggered, the ME Bank issue converts to non-voting, unlisted shares at a price determined by a book value test.

ASX LISTED HYBRIDS

COMPANYCODEHYBRID TYPE MATURITY OR
STEP-UP DATE
MARGIN
INC FRANK
TRADING
MARGIN
∆ WEEKWEEK
CLOSE
YTM Est**S&P CREDIT
RATING
COMP/HYBRID
ANZ Banking GroupANZPAMCPS I12/16/20163.10%2.44%-0.25%100.954.58%AA-/BBB
ANZ Banking GroupANZPCMCPS II09/28/20173.10%3.67%0.03%100.45.92%AA-/BBB+
ANZ Banking GroupANZPDMCPS II09/01/20213.40%4.07%0.11%98.36.32%AA-/BBB+
ANZ Banking GroupANZPECapital Note03/24/20223.25%4.24%0.09%966.49%AA-/
Bendigo BankBENHBPerpetual10/21/20541.00%2.64%0.24%754.78%A-/BBB
Bendigo BankBENPDMCPS II12/13/20175.00%4.05%0.29%102.216.30%A-/BBB-
Bendigo BankBENPEMCPS II11/30/20203.20%4.33%0.13%95.26.58%N/A
Bank Of QueenslandBOQPDMCPS II04/15/20185.10%3.84%0.24%104.56.09%BBB+/BB+
CBA PERLS 3PCAPAStep Up04/06/20161.05%2.95%-0.02%198.265.09%AA-/BBB
CBA PERLS 6CBAPCMCPS II12/15/20183.80%3.72%0.00%100.35.86%AA-/BBB-
CBA PERLS 7CBAPDMCPS II12/15/20222.80%4.11%0.06%92.476.25%AA-/BBB-
ChallengerCGFPACapital Note05/25/20203.40%4.78%0.35%94.716.92%-/-
EldersELDPAPerp'l Pref06/30/2051N/A0.00%0.00%75.010.00%N/A
IAGIAGPCMCPS II05/01/20174.00%3.60%-0.11%101.55.85%A+/A-
IAG RESIANGReset pref12/16/20194.00%3.37%-0.02%102.55.51%A+/BBB+
Macquarie BankMBLHBIncome SecPerpetual1.70%3.71%0.12%73.75.85%A/BB+
MacquarieMBLPACapital Note03/24/20213.30%4.21%0.12%976.46%A/-
MacquarieMQGPACapital Note06/07/20194.00%3.94%0.03%1006.19%A-/BBB-
Multiplex SITESMXUPAPerp'l PrefPerpetual3.90%5.36%0.05%84.77.50%BB+/BB
Nat Aust BankNABHAIncome SecPerpetual1.25%3.19%0.12%72.585.33%AA-/BBB
Nat Aust BankNABPAMCPS II03/20/20193.20%3.72%0.02%98.245.86%AA-/BBB-
Nat Aust BankNABPBMCPS II12/17/20203.25%4.18%0.28%95.786.32%AA-/BBB-
NufarmNFNGStep UpPerpetual3.90%5.20%0.02%86.27.45%BB /B+
PaperlinxPXUPAPerp'l Pref06/30/2052N/A8.80%0.00%6.7111.05%N/A
Ramsay Health CareRHCPAPerp'l PrefPerpetual4.85%4.70%0.13%1036.95%BBB/BB+
Suncorp-MetwaySBKHBIncome SecPerpetual0.75%2.25%0.00%764.39%A+/A-
SuncorpSUNPCMCPS II12/17/20174.65%3.79%-0.01%1025.93%A /BBB+
SuncorpSUNPEMCPS II06/17/20203.40%3.94%0.33%97.716.08%A /BBB+
Seven Network TELYS 4SVWPAPerp'l Pref12/02/20544.75%6.91%0.39%79.469.16%BB+/BB-
WestpacWBCPCMCPS II03/31/20183.25%3.87%0.08%99.66.12%AA-/BBB-
WestpacWBCPDMCPS II03/08/20193.20%3.85%0.10%97.995.99%AA-/BBB-
WestpacWBCPEMCPS II09/22/20223.05%3.95%-0.07%94.86.09%AA-/BBB+
WestpacWCTPAStep Up06/30/20161.00%3.12%0.54%97.765.26%AA-/BBB

** YTM for floating rate securities is an estimate using current interest rates. This will vary if rates change.
Source: Evans & Partners. Dealing Contact Michael Saba +61 3 9631 9813

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