In recent years, when one of a company’s existing hybrid approaches its first call date (or first optional resale date in this case), speculation turns to the likelihood of a replacement hybrid security. Macquarie Group Capital Notes (ASX code: MQGPA) had a June 2018 call date and, unsurprisingly, Macquarie issued a new hybrid security (ASX code: MQGPA) as a replacement in May of that year.
However, Macquarie has now announced an offer of a new hybrid when none of its existing hybrids are near a call date. Perhaps Macquarie thinks it is an opportune time to raise capital or perhaps it thinks the cost of capital will be higher in the foreseeable future.
In any case, Macquarie plans to raise $500 million via an issue of Capital Notes 4 (ASX code: MQGPD), with the ability to raise more or less than this amount. The new securities will be perpetual, convertible, subordinated, unsecured notes and the proceeds will be used for “general corporate purposes”.
The new notes have some features in common with equities and some features in common with 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 “trigger 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 were 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.