Macquarie hybrid gets the thumbs up

Fixed income researcher BondAdviser has rated Macquarie Bank's new hybrid issue "subscribe", citing Macquarie's financial strength and operational outlook and forecasting that there would not be a lot of "supply-side" pressure on trading margins this year.

Macquarie Bank will pay a margin of 2.9 to 3.1 per cent over the bank bill swap rate on its latest issue of hybrid securities. The bank is targeting a capital raising of A$400 million.

Macquarie Bank Capital Notes 2 are perpetual, unsecured, convertible subordinated notes which qualify as additional tier 1 capital for the bank.

Distributions are discretionary and non-cumulative, and are expected to be partially franked.

The notes may be redeemed on December 2025 (a call date of 5.75 years), June 2026 or December 2026, and they have a mandatory conversion date of December 2028.

In terms of the yield and term to maturity, Macquarie Bank Capital Notes 2 are paying in line with recent issues by ANZ, Commonwealth Bank NAB and Westpac. It has a shorter term to the call date than ANZ Capital Notes 5 and Westpac Capital Notes 5.

Bond Adviser says it does not expect a lot of supply-side pressure from issuers this year, which should give pricing support to the Macquarie issue.

Among recent issuers, Suncorp set a margin of 3 per cent when it issued Suncorp Capital Notes 3 last November and CBA set a margin of 3 per cent when it launched PERLS XII in October

The Suncorp notes have a call date of June 2026 and the CBA notes have a call date of April 2027.

The Macquarie notes will probably pay 10 basis point less than those securities but has a shorter maturity.

Hybrids were in demand last year, with ASX data showing that bank-issued hybrids traded above their issues prices.

Bond Adviser says: "As rate expectations drift ever lower locally, trading margins will decrease absolutely and also narrow relatively against peer instruments, absent any issuer-related credit effect (for example, AMP)."