Challenger, the funds management and annuities company, is planning another issue of Additional Tier 1 capital notes to add to its existing Notes (ASX code: CGFPA) which are already listed on the ASX. In a September quarter update to the market, Challenger said it would issue AT1 capital notes before June 2017, subject to market conditions.
Challenger is required by APRA to have a minimum amount of capital for each dollar of assets in its life business. The company prefers to keep this ratio in the range 1.3 to 1.6 times APRA’s minimum requirement and as its life business is growing, additional capital will be necessary.
Its existing capital notes (ASX code: CGFPA) were issued in 2014 at a margin of 340bps over 3m BBSW. Challenger’s senior debt is rated BBB+ by S&P Global Ratings. AA- issuers have issued AT1 securities with margins between 470bps (ANZPG) and 495bps (NABPD), so unless conditions change substantially between now and the end of June, Challenger can expect its second hybrid to warrant a much higher margin than the first.