Summary: Macquarie Bank to issue hybrid security previously withdrawn in March; issue margin increased significantly; other terms unchanged.
Macquarie Bank was set to issue a new hybrid in March when equity markets began to crumble in response to the spread of COVID-19 and the consequent shutdown of economic activity which was expected to follow.
Macquarie put the issue into hibernation on 13 March 2020. It now plans to raise the originally intended amount of $400 million via an issue of Capital Notes 2 (ASX code: MBLPB) securities, with the ability to raise more or less than this amount. The name, ASX code and terms are the same but the margin has been raised.
The new securities will be perpetual, convertible, subordinated, unsecured notes and the proceeds will be used “for general corporate purposes”. In effect, Macquarie Bank’s balance sheet will return to roughly the same position it was in prior to the resale of Macquarie Bank’s Capital Notes (ASX code: MBLPA) in March.
Stockbroking sources described the margin as “good in historical terms” and “fairly priced” given current market conditions.
The new notes have some features in common with both equities and debt securities. Distributions are at the discretion of directors but they are calculated according to a set formula with reference to the $100 face value of the securities. The notes will qualify as Additional Tier 1 (AT1) capital under the Basel III bank regulatory framework, which means they have the now-standard “event” clauses which may lead to early conversion into ordinary shares or a write-off of the capital notes should APRA require it. In the event Macquarie Bank was wound up (and APRA had not already forced a write-off), its hybrids would rank above ordinary shares but below ordinary debt securities and other liabilities.
The new capital notes have an indicative distribution rate equivalent to 3 month BBSW plus a margin of 470bps to 490bps. The final margin will be determined by a “book build” which will be announced on 15 May 2020. A book build is a tender process managed by investment banks on behalf of the issuer in which investment institutions each place bids for a set volume at a price/yield. (This is the same way as the AOFM holds tenders to sell government bonds each week). If history is any guide, then the margin is likely to be set at the lower end.