Macquarie Capital Notes 3 (MCN3)
Macquarie Group (MQG) has announced the IPO of a new Additional Tier 1 (AT1) capital hybrid (under Basel III) Macquarie Capital Notes 3 (MCN3). Further, the holders of existing Macquarie Capital Notes (MQGPA) will have the opportunity to rollover into the new security. The new securities by definition are perpetual (however, are normally redeemed or rolled over into new issuances), convertible, subordinated and unsecured. As with all new structures, the securities have the non-viability clause, meaning the securities can be converted into ordinary shares or written off in times of significant financial stress.
Macquarie Capital Notes 3 (MCN3) Margin
The new securities will offer a margin of 4.0% above the 90d BBSW (which was determined via bookbuild) and distributions will be paid quarterly. The offer size is $600m, with the ability to raise more. Distributions are discretionary, non-cumulative and are expected to be franked at the same rate as the dividends (45%). Subject to all the conditions being met, the new securities will exchange into ordinary shares on 15 December 2027 (approximately in 9.6 years), however the Company can call these securities on the first call date of 15 December 2024 (approximately in 6.6 years). Investors in MQGPA can reinvest into the new offer and receive a final distribution of $2.4747 per security. Whilst the new securities pay the same margin as MQGPA, the new securities pay quarterly distribution versus MQGPA semi-annual. On our numbers, the MQGPC offer a cash running yield of 4.97% and yield to first call date of 6.73%. On our estimates, the pricing (4.0% margin) appears attractive relative to the average yield to first call trading margin of 3.73% of all mandatory convertible securities within our universe (including banks). Further, if we took just the non-bank Basel III securities in our universe, MQGPC’s margin of 4.0% again screens attractively against the group average of 3.84% (yield to first call trading margin). The two latest IPOs (WBCPH and CBAPG) in the sector are trading below par value, with the yield to call trading margins on WBCPH and CBAPG increasing towards the 4.0% being offered by the new Macquarie Capital Notes 3.
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