Challenger has announced the margin on its latest Challenger Capital Notes 2 (ASX code: CGFPB) offering and, as expected, it was at the bottom of the 4.40%-4.60% indicative range. When this margin is added to the current 3 month bank bill swap rate (BBSW) of 1.78%, investors can expect around 6.18% annualised, inclusive of franking credits, for the first quarter and thereafter if BBSW rates do not alter materially. BBSW is typically close to the RBA’s official cash rate which is currently 1.50%.
The chart below shows the trading margins of existing hybrids which are already listed on the ASX. In very simplified terms, a security’s trading margin is the sum of its annualised distributions as percentage of its price less BBSW. (In practice, unrealised annual capital gains/losses and accrued distributions are also taken into account.)
Challenger said it had allocated $430 million on a firm basis and an additional $20 million is expected to be allocated under its Securityholder offer, which closes on 31 March 2017. The new capital notes are expected to begin trading on the ASX on 10 April 2017 and the first distribution date will be on 22 August 2017.
For readers interested in the historical movements of 3 month BBSW, here is a chart which shows its relationship to the RBA cash rate.
