Heritage Bank yesterday joined a rush by Australia's banks, large and small, in seeking to diversify funding sources, raising A$50 million via an issue of new floating rate subordinated hybrid debt.
These will be 10-year notes, with the ability to call after five years under certain conditions (and therefore known as 10NC5). This deal follows on from a fixed income debt investor update call on Monday 15 June, with ANZ and NAB were mandated as joint lead managers for the transaction.
The sub debt transaction was being marketed with a margin of between 350 and 360 basis points over three-month BBSW, before pricing at a coupon of 350 bps over three-month BBSW.
A note from bankers involved in the deal said this Tier 2 offering was expected to be rated Baa3 by Moody’s Investors Service. The current rating puts the hybrid paper two notches below Moody's Baa1 (Stable) standalone rating for the bank.
Heritage Bank, based in Toowoomba, is clearly testing the market and its processes – after all, the bank has seen a solid 5.5 per cent lift in retail deposit base for the 2018/19 financial year, to be just shy of $7 billion, and the mutual bank earned $61.7 million pre-tax profit, to put this deal in context.
This sub debt issue follows on from a $750 million 10NC5 Tier 2 transaction priced at 290 bps over 3-month BBSW by Macquarie Bank on 21 May, with Big Four banks and Macquarie working as joint lead managers. This issue also priced tighter than the 315 bps margin that was indicated at launch.
Among other recent issuers, Suncorp set a margin of 3 per cent when it issued Suncorp Capital Notes 3 last November, after CBA had also set a margin of 3 per cent when it launched its PERLS XII notes in October.