Mutuals on capital hunt

A long-running project by mutual banks, building societies and credit unions to find investors in a tier-two capital instrument has secured clearance from the regulator, with marketing now finally getting underway.

Seventeen mutual ADIs plan to sell A$58 million in capital through the Australian Mutual Investment Trust.

Around $46 million will be used to repay outstanding securities issued under a similar offer in 2006. A group of 21 credit unions sold $100 million in tier-one and tier-two capital at the time.

The Australian Mutual Investment Trust will use the funds raised to invest in the subordinated debt of the 17 credit unions.

This funding round has required extensive negotiations among credit unions, their advisers and the Australian Prudential Regulation Authority. APRA will allow the mutuals to treat the capital raised as tier two under transitional provisions covering hybrid securities.

The security does not otherwise meet all requirements for "loss absorption" under APRA's latest standards.

Moody's Investors Service rated the $30 million senior tranche of the securities at A3. Moody's did not rate $27 million in junior notes or a $810,000 equity tranche.

The larger mutuals in the group are Community Mutual, the Maritime, Mining and Power Credit Union, Victoria Teachers Mutual Bank, SGE Credit Union and Sydney Credit Union.

The top five mutuals account for 55 per cent of the subordinated debt that the trust will invest in.

Mark Genovese, chief executive of MMPCU, said the mutual group was not selling the securities because they need capital now but to provide the group was a funding option.

"We set out to create a vehicle five years ago. We got a process in place and a structure in place so we could create a history of paying the existing investors.

"In future if we want capital we've got a track record."

Genovese said that based on the A3 rating the mutuals group was expecting to pay between 325 basis points and 375 bps over swap for the senior securities.

He said target investors include larger mutuals and industry superannuation funds.

Westpac is lead manager for the sale.