Corporate Hybrids - BondAdviser · 2016-10-18 · Hybrids can Hybrids: Debt or Equity? be...

Corporate Hybrids 2017 Handbook

1 | Bond Adviser Pty Ltd

Corporate Hybrids

The BondAdviser Corporate Hybrid Handbook 2017 is designed to be a useful reference for ASX-listed corporate hybrid securities and the credit profiles of their underlying issuers. We believe there are a number of attractive investment opportunities across different corporate industries and the recommendation table below reflects our views on these particular securities.

Corporate hybrids are overshadowed in a market dominated by banks and other financial institutions. As a result, many investors fail to reap the diversification benefits that non-financial issuers offer in a balanced portfolio. While bank and other financial hybrids are often driven by macro-economic, regulatory and/or political themes and trends, corporate hybrids warrant a more case-by-case approach which promotes diversification. For this reason, corporate hybrids should not be overlooked.

Given the ‘lower-for-longer’ interest rate environment, the search for yield is becoming an increasingly difficult task. While hybrids continue to be an attractive option to boost income, they are not without inherent risks.

Figure 1. Summary of Recommendations

Source: BondAdviser

Tatts Bonds (TTSHA), Peet Bonds (PPCHA) and Qube Subordinated Notes (QUBHA) are excluded from this report as they are not considered hybrid securities.

Buy Hold Sell

APA Group Subordinated

Notes (AQHHA)

AGL Subordinated Notes

(AGLHA)

Crown Subordinated Notes I

(CWNHA)

Goodman Preferred Step-

Up Securities (GMPPA)

Crown Subordinated Notes II

(CWNHB) Origin Energy (ORGHA)

Seven TELYS4 (SVWPA) Ramsay CARES (RHCPA)

Woolworth Subordinated

Notes (WOWHC)

Caltex Subordinated Notes

(CTXHA)

Tabcorp Subordinated

Notes (TAHHB)

Multiplex SITES (MXUPA)

Nufarm Step-Up Securities

(NFNG)

2017 Handbook Credit Research

Jack Pobjoy Credit Analyst (+61) 3 9670 8615 [email protected] Nicholas Yaxley Head of Research (+61) 3 9670 8615 [email protected]

mailto:[email protected]

mailto:[email protected]



Table of Contents

3. Introduction: Why Corporate Hybrids

4. Hybrids: Debt or Equity?

5. Corporate Hybrid Characteristics

6. Corporate Hybrids Structure Summaries

7. Valuation

8. Market Size

9. Historical Risk and Return

12. Market Performance

16. Outlook: Top Trades

19. Company Profiles

AGL Energy

APA Group

Caltex Australia

Crown Resorts

Goodman Plus Trust (Goodman Group)

Multiplex SITES Trust

Nufarm

Origin Energy

Ramsay Health Care

Seven Group

Tabcorp Holdings

Woolworths

32. Appendix 1: Accounting Treatment of Hybrids

33. Appendix 2: Trust Structures

34. Appendix 3: Non-Called Hybrids



Low Risk

High Risk

Introduction: Why Corporate Hybrids? Hybrid securities are instruments that feature characteristics of both debt and equity and are generally complex and highly structured instruments. A hybrid is the broad term used to describe an instrument that typically ranks behind senior debt but ahead of equity and in some cases can be converted into ordinary equity. However, they can incorporate numerous features that comprise either debt-like and equity-like traits. Why do companies issue hybrids? For some companies, it may be easier to raise debt instead of equity, especially for private companies that do not have access to capital markets. For others, it could be a case of cheap funding or tax benefits. Hybrids also allow companies to avoid common equity dilution which is a positive for earnings per share. On the other hand, companies may choose to issue hybrids over senior debt due to restrictive financial covenants that limit the amount of senior indebtedness the company can incur. Overall, the reasons behind hybrid issuance is diverse but will ultimately tie into the company’s overarching capital management strategy. Over the past 5 years, hybrid issuance has been a by-product of credit rating methodology known as ‘equity-credit’. Under this criteria, hybrid securities are classified (partially or wholly) as equity instead of debt from a credit rating perspective. This in turn maintains the underlying issuer’s credit metrics when assessed by the credit rating agencies. Equity credit typically ceases once a hybrid security reaches its call date. As a result, this gives the issuing company an incentive to call the security at this date unless the cost of servicing the hybrid remains relatively cheap to other funding sources (which is unlikely given the explanation below). By utilising the equity credit treatment companies incur higher interest costs (i.e. 2-3%) relative to normal debt instruments of bank funding. This is due to the capital structure and priority of payments, which differentiates traditional fixed income (i.e. bonds) from hybrid securities. Figure 2. General Corporate Capital Structure

Corporate Capital Structure

Senior Secured

Secondary Lien Secured

Senior Unsecured

Subordinated Debt

Preference Shares

Equity

Source: BondAdviser

Hybrids rank below senior debt and are therefore riskier investments. Due to this increased risk, hybrids will generally pay a higher return (as described above in the form in of a yield premium). It is therefore crucial that investor’s understand the underlying issuer’s capital structure to help justify the risk and return inherent in a potential hybrid investment. Additionally, as these securities are classified as a combination of equity and debt, they are generally more volatile than traditional debt instruments and behave in a manner similar to ordinary equity during periods of financial distress.

Bank Loans

Bonds

Hybrids

Shareholders



Hybrid

Equity Debt

Non-Deferrable Interest

Unsubordinated

Cumulative Interest Payments

Fixed Maturity Date

No Conversion

Optional Interest (Dividends)

Non-Cumulative Dividends

No Maturity Date - Perpetual

Mandatory/Optional Conversion

Deeply Subordinated

Senior Debt Subordinated Debt with interest deferral

Perpetual non-cumulative debt Ordinary Shares

Subordinated Debt Subordinated Debt with loss absorption

Convertible preference shares and capital notes

Pure Equity

Pure Debt

Hybrids: Debt or Equity? Hybrids can be classified as either debt or equity depending on varying accounting treatment and methodology (see appendix 1). However, the truth is hybrids exhibit both equity and debt characteristics and this is the foundation behind the equity-credit given to companies by credit rating agencies. In the following diagrams, we dissect a general hybrid’s structure to illustrate the overlay of debt and equity asset classes. Figure 3. Comparison of characteristics between hybrid instruments with debt and equity

Source: BondAdviser

Figure 4. Hybrid Security Spectrum

Source: Australian Securities and Investment Commission (ASIC)



Corporate Hybrid Characteristics As previously mentioned, corporate hybrids warrant a case-by-case analysis. While all corporate hybrids are subordinated to senior debt and have some form of call date, there are unique security-specific characteristics that must be considered. Deferral Risk

Many hybrids exhibit a mandatory or optional coupon deferral condition. This effectively means that the issuer may either be forced or choose to defer payments to hybrid investors. The interpretation of what can actually trigger a distribution deferral can include events such as a credit rating downgrade or breach of one or more financial covenants specified in the terms of the hybrid documentation. An important detail is whether the deferred coupons are cumulative and/or compounding or not. If the coupons are cumulative, hybrid holders may recoup deferred payments once the deferral event ceases. As a result, all missed coupon payments will be paid at the next payment date. If the coupons are also compounding, interest earned on deferred distributions will also be reimbursed to the investor. If the hybrid is non-cumulative, then deferred (or missed) distributions will never be repaid. If deferral occurs, the issuer may also be subject to a dividend pusher and/or stopper. Dividends stoppers ensure that all securities subordinated or on par with the hybrid (in regards to their position on the capital structure) are not paid distributions until payments are resumed on the hybrid (or in some cases until after a certain time period of resumed payments). Dividend pushers, on the other hand, ensure that before a dividend payment is made, coupons on the hybrid are being paid again. Step-Ups

Hybrids may also be subject to various coupon step-up conditions. A feature of some hybrid securities is a pre-specified coupon step-up if the issuer fails to redeem the hybrid security at its call date. A coupon step-up could also occur if the underlying issuer experiences a credit rating downgrade or breaches a financial covenant. As the step-up will increase the funding cost, the issuer may have an economic incentive to call the hybrid as it may be replaced by a similar security (or even another hybrid) with more favourable terms (to the issuer). Callability

The callability of a hybrid depends on its structure and term. The hybrid can either have a pre-specified call date, multiple call dates, callable over a pre-defined period or callable at any time. It is also worth noting that in some cases the call date is referred to as the reset date or the re-marketing date. At the call date, the hybrid may either be redeemed and/or converted into ordinary equity depending on the terms of the relevant documentation. Convertibility

Some hybrids give the issuer the option to convert their hybrid securities into ordinary shares at a pre-defined ratio. In some other cases, the option is given to hybrid holders and they can decide what is the most profitable option (redemption, convertibility or some other special scheme). Long Term

While call dates generally range anywhere from 5 to 20 years, a hybrid’s term to maturity can span over decades. This is a characteristic similar to the perpetual nature of common equity. Some hybrids are simply classified as perpetual and remain outstanding until called by the issuer.

The following page gives a summary of ASX-Listed corporate hybrid structures.



Ticker AGLHA AQHHA CTXHA CWNHA CWNHB GMPPA MXUPA NFNG ORGHA RHCPA SVWPA TAHHB WOWHC

Issuing Entity AGL Energy Ltd

APT Pipelines Ltd

Caltex Aus Ltd

Crown Resorts Ltd

Crown Resorts Ltd

Goodman Plus Trust


Nufarm Finance (NZ) Ltd

Origin Energy Ltd

Ramsay Health Care Ltd

Seven Grp Holding Ltd

Tabcorp Holdings Ltd

Woolworths Ltd

Capital Structure Position Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated Subordinated

Size ($m) 650 515 550 532 630 327 450 251 900 260 496 250 700

Equity Credit 0% 50% 50% 50% 50% 50% 0% 50% 50% 0% 0% 50% 50%

Date Issued 4/04/2012 18/09/2012 5/09/2012 14/09/2012 23/04/2015 21/12/2007 19/01/2005 24/11/2006 22/12/2011 24/05/2005 30/04/2010 22/03/2012 24/11/2011

Maturity 8/06/2037 30/09/2072 15/09/2037 14/09/2072 23/04/2075 Perpetual Perpetual Perpetual 22/12/2071 Perpetual Perpetual 22/03/2037 24/11/2036

First Call Date 8/06/2019 31/03/2018 15/09/2017 14/09/2018 23/07/2021 30/09/2017 1/04/2010 24/11/2011 20/12/2016 26/08/2010 31/05/2010 22/03/2017 24/11/2016

At Option of Issuer Issuer Issuer Issuer Issuer Issuer Issuer Issuer Issuer Issuer Issuer Issuer Issuer

Redeem Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Exchange No No No No No Yes Yes Yes No Yes Yes No No

Transfer No No No No No No No No No No No No No

Second Call Date No No No No No 31/12/20731 No No No No No No No

Fixed Coupon (p.a.) - - - - - - - - - - - - - Floating Margin (p.a.) 3.80% 4.50% 4.50% 5.00% 4.00% 3.90% 1.90% 1.90% 4.00% 2.85% 2.50% 4.00% 3.25%

Coupon Frequency Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Semi-Annual Quarterly Semi-Annual Semi-Annual Quarterly Quarterly

1st Step-Up Date 8/06/2019 31/03/2038 15/09/2017 14/09/2038 23/07/2041 30/09/2022 1/04/2010 24/11/2011 22/12/2036 20/10/2010 31/12/2010 22/03/2017 24/11/2016

Step-Up Amount (p.a.) 0.25% 1.00% 0.25% 1.00% 1.00% 0.25% 2.00% 2.00% 1.00% 2.00% 2.25% 0.25% 1.00%

2nd Step-Up Date N/A N/A N/A N/A N/A 31/12/2038 N/A N/A N/A N/A N/A N/A N/A

Step-Up Amount (p.a.) N/A N/A N/A N/A N/A 0.75% N/A N/A N/A N/A N/A N/A N/A

Interest Deferral Optional & Mandatory Optional Optional

Optional & Mandatory

Optional & Mandatory Optional Optional Optional

Optional & Mandatory Optional Optional

Optional & Mandatory Optional

Non-Cumulative Deferral No No No No No Yes Yes Yes No Yes Yes No No

Compounding Deferral Yes Yes Yes Yes Yes N/A N/A N/A Yes N/A N/A Yes Yes

Dividend Stopper No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes 1At option of holder to either exchange or redeem.

Corporate Hybrid Structure Summaries

Figure 5. Hybrid Structure Summaries

Source: Company Reports, BondAdviser



Valuation Our valuation assumptions for hybrids can vary but are generally based on the security being redeemed (in full) at the first call date with all interest payments being made in full and in a timely manner. Timing of this call option is crucial to the performance of the security. The pricing of a hybrid security can differ materially depending on whether the instrument is priced to the optional call date, other call dates or its legal final maturity date For perpetual securities that were not called at their initial call date and remain outstanding we assume a 15-year swap yield to price accordingly. Due to the greater degree of uncertainty, perpetual hybrids tend to trade at a yield premium to hybrids that are yet to reach their first call date.

These hybrids include SVWPA, MXUPA, RHCPA and NFNG (see Appendix 3).

Figure 6. Corporate Hybrid Yield to Expected Call

Source: BondAdviser as at 30th of September 2016

Figure 7. Corporate Hybrid Yield to Expected Call Vs Term


10.29%

9.25%8.73% 8.53%

7.46% 7.27% 7.01%6.21%

4.99% 4.65% 4.47%4.08% 3.93%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

AGLHA

AQHHA

CTXHA

CWNHA

CWNHB

GMPPA

MXUPA

NFNG

ORGHA

RHCPA

SVWPA

TAHHB

WOWHC

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

0 2 4 6 8 10 12 14 16

Yie

ld-T

o-E

xpecte

d-C

all

Term (Years)

Perpetual



Market Size The ASX-listed debt & hybrid market is dominated by financial issuers, particularly the major banks who have issued capital instruments to meet regulatory requirements. Corporate issuance is typically smaller than financial issuance as illustrated in Figure 8.

Figure 9 shows the effect the global financial crisis had on issuance for Australian corporates in 2010 and 2011. Activity picked up in 2012 as a number of companies utilised the credit rating equity methodology to support their balance sheets. In 2013, this methodology was adjusted by Standard and Poor’s and subsequently many hybrids qualified for ‘immediate’ treatment (50%) rather than ‘high’ treatment (100%). As a result, many corporates have become reluctant to issue new hybrids despite strong demand from retail investors.

Figure 8. ASX-Listed Hybrid Market ($billions)

Source: ASX, BondAdviser

Figure 9. The Listed Corporate Hybrid Market ($billions)

Source: ASX, BondAdviser

$26.1$23.2

$26.5

$36.5

$42.9$47.1 $47.9

$54.1

$0bn

$10bn

$20bn

$30bn

$40bn

$50bn

$60bn

2009 2010 2011 2012 2013 2014 2015 2016

Financial Corporate

$10.0

$6.5 $6.7

$7.8 $7.8

$7.1 $6.9 $6.9

$0bn

$2bn

$4bn

$6bn

$8bn

$10bn

$12bn

2009 2010 2011 2012 2013 2014 2015 2016



Historical Risk and Return When markets are stable, hybrids act like debt but when equity markets become volatile hybrids begin to behave more and more like equity. This is one of the key differences between hybrids and more traditional debt instruments such as bonds. Figure 10 depicts the volatility between asset classes. Figure 10. Equity Vs Bond Vs Hybrid Index Performance Post GFC (Rebased)

Source: Bloomberg, Evans & Partners as at 30th of September 2016

On a monthly return basis, hybrids have performed, 0.15% better than bonds (on average) since 2009. This has been accompanied by greater volatility (see figure 11) but given these returns have been (to a large extent) normally distributed we can see hybrids have remained a reliable source of income.

Figure 11. Normal Distribution of Hybrid and Bond Monthly Returns (Post GFC)

Source: BondAdviser, Bloomberg, Evans & Partners

*Note: All hybrids included.

800

1000

1200

1400

1600

1800

2000

2200

S&P/ASX200 Accumalation Index AusBond Composite Index Evans & Partners Hybrid Index

0

5

10

15

20

25

30

35

40

45

50

-6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00%

Fre

quency

Montly Return

Bond Normal Curve Hybrid Normal Curve



As the figures below illustrate, while bond and hybrid returns have followed normally distributed characteristics, the same cannot be said for equity returns (which have delivered an average 0.83% monthly return). Instead, since the GFC, equity returns have exhibited a wider distribution with the majority of returns occurring in the tails. Given the 0.15% additional average monthly return when moving from bonds to hybrids then the 0.18% additional average monthly return moving from hybrids to ordinary equity, we can see the risk of moving between asset classes follows an exponential relationship (i.e. risk increases faster than return). However, this data may not be representative of a longer time horizon. Figure 12. Bond Monthly Returns Frequency Distribution Versus Normal Distribution (Post GFC).

Source: Bloomberg, BondAdviser

Figure 13. Hybrid Monthly Returns Frequency Distribution Versus Normal Distribution (Post GFC).

Source: Evans & Partners, BondAdviser

*Note: All Hybrids Included.

Figure 14. Equity Monthly Returns Frequency Distribution Versus Normal Distribution (Post GFC).


0

5

10

15

20

25

30

35

40

45

50

-6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00%

Fre

quency

Montly Returns

0

5

10

15

20

25

30

35

-8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00%

Fre

quency

Montly Returns

0

2

4

6

8

10

12

14

-10.00% -8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00%

Fre

quency

Montly Returns



The following table displays individual security returns over the last 10 years. The results are consistent with our previous notions and demonstrates the volatility experienced during the GFC before returning to more stable levels in recent years.

Figure 15. Individual Corporate Hybrid Returns



1 Month 1.22% -0.26% 0.40% 1.53% -1.11% -1.00% -0.25% 1.15% 0.00% 2.01% -0.11% -0.14% -0.16%

3 Month 2.71% 2.44% 1.23% 5.73% 5.82% 0.22% 2.01% 5.39% 2.22% 1.94% 26.20% 1.34% 1.32%

6 Month 5.08% 3.77% 3.34% 20.36% 19.49% 4.18% 3.13% 9.96% 3.57% 3.40% 22.82% 2.42% 1.58%

1 Year 7.64% 4.65% 5.29% 7.09% 2.87% 5.84% -0.31% 13.82% 12.70% 9.05% 18.55% 4.67% 4.71%

2 Year 12.63% 11.86% 9.95% 8.24% - 10.65% -2.56% 11.65% 10.70% 9.43% -6.96% 8.40% 7.42%

3 Year 17.57% 18.67% 17.32% 16.41% - 20.58% 9.04% 22.97% 18.87% 15.98% -1.70% 19.30% 12.85%

4 Year 30.25% - - - - 46.67% 32.03% 52.46% 28.31% 27.86% 9.86% 31.16% 20.03%

5 Year - - - - - 91.55% 42.65% 85.63% - 33.20% 13.82% - -

7 Year - - - - - 160.38% 113.56% 75.40% - 55.26% 16.76% - -

10 Year - - - - - - 118.00% - - 82.92% 32.08% - -

Since Inception (p.a.) 7.18% 7.62% 7.61% 7.41% -2.18% 9.49% 7.40% 7.29% 6.90% 6.21% 3.39% 7.02% 6.03%

FY17 YTD 2.71% 2.44% 1.23% 5.73% 5.82% 0.22% 2.01% 5.39% 2.22% 1.94% 26.20% 1.34% 1.32%

FY2016 3.52% 4.45% 5.18% 0.11% -6.40% 6.42% -7.37% 6.48% 5.34% 5.41% -20.96% 5.97% 3.92%

FY2015 3.42% 3.36% 3.67% 1.46% - 3.25% 3.55% 7.73% 2.57% 1.55% -7.74% 2.07% 2.64%

FY2014 11.56% 11.07% 12.11% 12.53% - 16.30% 15.80% 20.48% 10.49% 5.98% 10.55% 13.37% 5.89%

FY2013 9.44% - - - - 17.23% 18.74% 13.25% 7.72% 10.00% 12.94% 9.49% 7.76%

FY2012 - - - - - 25.04% -1.64% 9.75% - 6.60% -6.26% - -

FY2011 - - - - - 21.45% 18.22% 8.15% - 13.35% 25.55% - -

FY2010 - - - - - 98.44% 107.15% 10.72% - 8.14% -8.63% - -

FY2009 - - - - - -45.54% -29.97% -5.68% - 3.90% 6.78% - -

FY2008 - - - - - - -17.50% -8.19% - -2.11% -6.72% - -

FY2007 - - - - - - 13.53% - - 4.88% 5.34% - -

FY2006 - - - - - - 9.94% - - 8.72% 8.45% - - 1Financial Year to Date



Market Performance While corporate hybrid performance has remained relatively stable over recent years, this has not always been the case with a number of issuer credit profiles deteriorating, particularity during the GFC. Two of Australia's high profile corporate defaults had issued corporate hybrid securities (ABC Learning and Babcock & Brown). However, the most recent hybrid default was that of forestry group, Gunns Limited. Although a minority, these examples illustrate the importance of due diligence and credit research when investing in corporate hybrid securities.

As many hybrid securities include the option to defer distributions, issuers can decide to cease payments to solidify their financial positions in periods of distress. While this does not constitute default, it typically triggers a substantial sell-off in the hybrid security, especially if payments are deferred for a prolonged time. Prime examples include PaperlinX Step-Up Preference Securities (ASX: PXUPA) and Elders Hybrid (ASX: ELDPA) shown in Figure 16.

These examples demonstrate extreme situations and the majority of corporate hybrids have performed in a more orderly fashion. Overall, investors should be aware there is greater volatility in corporate hybrids in comparison to more traditional fixed income securities such as bonds (Figure 17).

Figure 16. GNSPA, PXUPA and ELDPA Price History


Figure 17. Average Trading Margin of Issuers with both Australian Bonds and Hybrids Outstanding

Source: BondAdviser, *Note: AGLHA, AQHHA, CTXHA, CWNHA, CWNHB and WOWHC included.

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ELDPA PXUPA GNSPA

Defaulted

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Jan

-2013

Ma

r-2013

Ma

y-2

013

Jul-2

013

Se

p-2

013

Nov-2

013

Jan

-2014

Ma

r-2014

Ma

y-2

014

Jul-2

014

Se

p-2

014

Nov-2

014

Jan

-2015

Ma

r-2015

Ma

y-2

015

Jul-2

015

Se

p-2

015

Nov-2

015

Jan

-2016

Ma

r-2016

Ma

y-2

016

Jul-2

016

Se

p-2

016

Average Hybrid Trading Margin Average Bond Trading Margin



Over the past financial year, the average corporate hybrid trading margin has traded in a range of 4.00-6.00%. However, during January 2016 the trading margin broke the upper bound of this range and continued to widen through February before compressing back below 6.00% in March. As a result, there were a number of attractive opportunities in the corporate hybrid market that were consistent with our recommendations. Figure 18. Corporate Hybrid Weighted Average Trading Margin

Source: BondAdviser

There were multiple events that caused the January breakout including the following:

Corporate Activity at Crown Resorts – In late 2015, a major shareholder of Crown (i.e. James

Packer), signalled their intention to potentially privatise the company. This speculation, along with funding issues, was the major driver of volatility for both of Crown’s Subordinated Notes (CWNHA & CWNHB).

Figure 19. Crown Hybrids’ 2016 Trading Margin Performance

Source: BondAdviser

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

CWNHA CWNHB

Privatisation speculation and funding issues

Reduction in shareholding of poor

performing Melco joint venture

Proposed Crown demerger relieves funding pressure



Debt Levels at Origin Energy – over the course of the last 12 months, there was growing

concerns surrounding the capacity of Origin to maintain its debt levels and overall liquidity. However, through a number of capital management initiatives including an equity raising and asset divestment program (both supported by the group’s Liquefied Natural Gas (LNG) project becoming operational in March 2016) this bleak outlook improved. As a result, Origin has reaffirmed its intention to redeem its subordinated notes (ORGHA) at their call date in December 2016.

Figure 20. Origin Hybrid (ORGHA) 2016 Trading Margin Performance

Source: BondAdviser

Dividend Concerns at Seven Group Holdings – Poor trading conditions and rising debt levels

left SVWPA holders questioning Seven’s ability to continue paying hybrid distributions. Seven announced in February 2016 that it is their intention to maximise shareholder value and maintain dividend payments. Due to the dividend stopper, this meant hybrid distributions would continue.

Figure 21. Seven Group Hybrid (SWVPA) 2016 Trading Margin Performance

Source: BondAdviser

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

$2.5 billion equity raising to maintain investment

grade credit rating

Origin confirms to redeem ORGHA by first call date in

December 2016

Speculation surrounding Origin's

ability to redeem ORGHA by first call

date

Origin sells first asset of their $800 million

divestment program

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

13.00% Concerns grow regarding Seven's ability to maintain

dividends on SVWPA

Seven posts poor 2015 full year results reflecting the end of

Australia's mining boom

Seven reaffirms ongoing dividend payments and

focus on maximising free cashflow



2016 Financial Year (FY16) Snapshot

Figure 22. FY16 Best and Worst Performers (Total Return)

Source: BondAdviser

Figure 23. FY16 Performance Summary

Price Trading Margin

Min Max Average Std Dv Min Max Average Std Dv

AGLHA $100.61 $106.45 $102.84 1.3 2.16% 3.87% 3.10% 0.320%

AQHHA $100.60 $107.49 $103.63 1.4 1.75% 4.46% 3.13% 0.576%

CTXHA $101.00 $106.98 $103.63 1.1 1.32% 4.29% 2.72% 0.482%

CWNHA $75.40 $104.90 $94.77 7.2 3.58% 18.08% 8.00% 3.447%

CWNHB $65.50 $99.00 $85.69 9.2 4.36% 14.14% 7.90% 2.607%

GMPPA $97.85 $102.50 $99.99 1.1 2.91% 5.57% 4.28% 0.662%

MXUPA $66.50 $84.38 $75.20 4.4 5.30% 7.66% 6.29% 0.497%

NFNG $79.00 $86.01 $82.27 1.6 5.22% 5.89% 5.54% 0.127%

ORGHA $90.01 $101.20 $98.36 0.8 3.42% 17.97% 6.66% 2.575%

RHCPA $100.56 $104.50 $103.07 0.8 4.56% 4.92% 4.72% 0.091%

SVWPA $50.00 $79.70 $64.06 6.6 6.95% 12.81% 9.47% 1.143%

TAHHB $99.21 $104.00 $101.92 0.9 1.30% 4.72% 2.91% 0.648%

WOWHC $100.00 $103.30 $101.33 0.7 1.43% 4.03% 2.34% 0.505%

Source: BondAdviser

Figure 24. FY16 Trading Turnover ($millions)

Source: Bloomberg

6.48% 6.42% 5.97% 5.41% 5.34% 5.18% 4.45% 3.92% 3.52%

0.11%

-6.40% -7.37%

-20.96%-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

$0

$50

$100

$150

$200

$250

$300

$350



Outlook: Top Trades Corporate hybrids have continued to perform well in the 2017 financial year with yields tightening by 0.36% on average. SVWPA has been strongest performer to date followed by CWNHA and CWNHB. The performance of SVWPA can be attributable to the on-market purchase of up to 10% of outstanding securities announced by Seven Group management in early August 2016. On the other hand, Crown’s credit profile has improved significantly since early 2016 and this is reflective in the performance of both hybrids.

Overall, corporate hybrid performance has been supported by the ‘search for yield’ in a persistently low interest rate environment. We expect this to continue and there a number of compelling trade opportunities in the sector. We present our top buy recommendations below.

Figure 25. FY17 Year-to-date Change in Yield-To-Call

Source: BondAdviser as at 30th of September 2016.

APA Subordinated Notes (ASX: AQHHA)

In recent years, the APA Group has made a string of acquisitions and investments in pursuit of earnings growth. The most significant acquisition was the Wallumbilla Gladstone Pipeline and was strategically targeted for the group to take advantage of increased demand from Queensland’s Liquefied Natural Gas (LNG) Projects. In response to this unprecedented change in demand/supply levels in the Eastern Australian gas market, regulating entities have undertaken a series of reviews into industry dynamics. While it is too early to assess the implications for APA Group, a key recommendation made by the Australian Competition Consumer Commission (ACCC) to Council of Australian Governments (COAG) Energy Council was to revisit the regulatory coverage of pipelines as the report found pricing was largely unconstrained by either threat of regulation or effective competition.

APA remains one of the most leveraged names under our coverage but regulatory pressure would significantly restrict APA’s risk appetite, especially for acquisitions. Large-scale corporate activity is likely to be deterred by the ACCC and measured organic growth will be employed as an alternative. As the nature of this strategy is small-scale relative to history (Wallumbilla), we expect the group’s funding requirements will be considerably less relative to previous years.

Over the long term, APA’s market power and earnings growth is likely to diminish as the regulatory scope for gas transmission increases but the end result should ultimately lead to less leverage, more risk controls and increased cashflow transparency which is a positive for credit investors. As a result, we expect AQHHA to continue to perform well.

-2.43%

-1.68%

-0.87%-0.64% -0.63% -0.59%

-0.30%-0.17%

-0.02%

0.03%

0.58% 0.60%

1.45%

-3.00%

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%



Crown Subordinated Notes I & II (ASX: CWNHA, CWNHB)

Crown Resorts has been in the media spotlight for most of the year. The group has been subject to privatisation speculation, funding concerns and poor investment performance which has resulted in sharp price volatility for both of its subordinated note issues (CWNHA and CWNHB). However, the primary story surrounding Crown remains the proposed demerger (Figure 21) and potential public offering of a 49% interest in a property trust.

Figure 26. Proposed Demerger of Crown Resorts

Source: Company Reports, BondAdviser

The credit outlook for Crown is tied to the uncertainty surrounding its large capital expenditure pipeline (Including Alon Las Vegas and the Melbourne Queensbridge Hotel Tower) and how the group intends to fund these projects without increasing leverage above rating agency maximums (note that a breach of these maximums would enforce mandatory deferral of interest payments on the subordinated notes). The proposed demerger (property trust yet to be approved the board) is expected to relieve some of this funding pressure and this is further supported by the sell down of its stake in Melco Crown (Macau casino interests) and subsequent reduction in debt.

As a result of the group’s improved credit profile and more sustainable balance sheet, we are now more confident in the group’s ability to redeem both subordinated note issues at their expected call dates (September 2018 and July 2021). We remain cautious of Crown’s ability to maintain stable credit metrics through this new period of growth primarily because it will be subject to funding, project development (and budget blowouts) and earnings risks. However, Crown is in a much better position now than a year ago and we believe they will be more conservative in the future.

Nufarm Subordinated Step-Up Securities (ASX: NFNG)

Although we do not currently have a buy recommendation on this security, we believe there is still capital upside. The global argi-chemical sector is currently in a state of consolidation and market participants are moving swiftly to gain market share, create synergies and cut costs.

As Nufarm is majority owned by Japanese group Sumitomo Chemical Company (23%) any potential takeover bid must comply with the shareholder deed between the two companies. Under this documentation, a ‘come-along obligation’ can be triggered whereby Sumitomo’s ability to block becomes void. In this event, Sumitomo must either match the takeover bid or sell into it. We estimate a price of ~$11.50-12.50 per share must be offered for a ‘Triggering Event’ to occur which translates to a premium of ~35-45% from the 20-Day Volume Weighted Average Share Price (VWAP). If we consider recent corporate activity in the sector including the ~30% premium ChemChina paid for global Swiss agribusiness Syngenta in February and the potential ~45% premium Bayer may pay for American group Monsanto (if the merger is approved by regulators), then a Nufarm takeover seems to be a reasonable proposition. However, given management’s recent comments regarding potential acquisitions and the cyclical nature of the business we remain cautious until more information regarding corporate activity comes to light.

Crown Resorts Limited

Crown Resorts Limited

(Operating Company)

International Company (Newly Listed Entity)

Company

Real Estate Investment Trust

Company

Melbourne (100%) Perth (100%)

Sydney (100%) Aspinalls (100%) CrownBet (62%) Betfair (100%)

DGN Games (70%)

Melco (27.4%) Alon (‘majority’) Aspers (50%) Nobu (20%)



Figure 27. Current Prices and Distributions


Gross Price $103.30 $102.50 $102.57 $99.20 $87.50 $99.60 $70.70 $88.00 $99.50 $105.00 $70.67 $101.00 $100.50

Accrued $0.33 $0.00 $0.26 $0.30 $0.25 $0.00 $0.00 $2.89 $0.13 $3.26 $2.30 $0.13 $0.51

Capital Price $102.97 $102.50 $102.31 $98.91 $87.25 $99.60 $70.70 $85.11 $99.37 $101.74 $68.38 $100.87 $100.00

Yield to Maturity 4.471% 4.652% 3.934% 7.462% 9.254% 6.208% 8.731% 7.267% 8.530% 7.014% 10.286% 4.081% 4.988%

Trading Margin 2.622% 2.775% 2.030% 5.606% 7.371% 4.309% 6.455% 4.984% 6.796% 4.731% 8.003% 2.141% 3.291%

Running Yield 5.370% 6.090% 6.270% 6.820% 6.580% 5.670% 7.980% 7.470% 5.770% 7.190% 10.040% 5.690% 4.980%

Distribution Margin (p.a.) 3.800% 4.500% 4.500% 5.000% 4.000% 3.900% 3.900% 3.900% 4.000% 4.850% 4.750% 4.000% 3.250%

Current Distribution Rate (p.a.) 5.520% 6.230% 6.240% 6.743% 5.743% 5.630% 5.860% 6.355% 5.740% 5.117% 4.806% 5.735% 4.980%

Franking 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 100% 0% 0%

Gross-Up Yield (p.a.) 5.520% 6.230% 6.240% 6.743% 5.743% 5.630% 5.860% 6.355% 5.740% 7.310% 6.865% 5.735% 4.980%

Next Ex-Date 29/11/2016 20/12/2016 6/12/2016 5/12/2016 5/12/2016 22/12/20161 29/09/2016 6/10/2016 13/12/2016 5/10/2016 21/11/20161 13/12/2016 15/11/2016

Next Record Date 30/11/2016 21/12/2016 7/12/2016 6/12/2016 6/12/2016 28/12/20161 30/09/2016 7/10/2016 14/12/2016 6/10/2016 23/11/20161 14/12/2016 16/11/2016

Next Payment Date 8/12/2016 3/01/2017 15/12/2016 14/12/2016 14/12/2016 3/01/20171 17/10/2016 17/10/2016 22/12/2016 20/10/2016 30/11/20161 22/12/2016 24/11/2016

Next Cash Distribution $1.376 $1.5703 $1.556 $1.680 $1.430 $1.419 $1.470 $3.186 $1.430 $2.566 $2.409 $1.430 $1.255 1Estimates

Source: BondAdviser, Company Reports as at 30th of September



Company Profiles



AGL Energy Summary Financials

(A$m) Year ended 30 June 2014 2015 2016 2H16

Revenue 10,308 10,533 11,150 Capital Structure Operating EBITDA 1,330 1,505 1,689 Secured – Finance Leases 19

Net interest -184 -211 -170 Unsecured – Bank Loans

1,228

Operating Cashflow 699 1,044 1,186 Unsecured – Other Loans 167

Dividends paid -269 -334 -446 Unsecured – USD Notes 463

Capex -723 -806 -992 Unsecured – Domestic Notes 597

Free cash flow -293 -106 194 Subordinated Debt (Hybrid) 650

Total Debt 3,124

Interest Deferral Covenants Deferred Borrowings Costs 16

Relevant Net Debt/EBITDA (x) 1.8 1.9 1.3 Foreign Currency Hedges -157

EBITDA/Relevant Net Interest (x) 9.1 9.1 13.0 Adjusted Debt 2,983

Cash & Liquids -252

Credit Metrics

Adjusted Net Debt 2,731

Net Debt/EBITDA (x) 2.4 2.4 1.7 Equity 7,926

Interest Coverage (x) 5.5 6.0 7.2 Gearing (%) 29.8 28.6 25.7 Liquidity facilities Adj. Dividend Payout Ratio (%) 65.0 66.4 65.4 Cash & Liquids

252

Net Debt to Equity (%) 30.0 29.1 36.0 Revolving Bank Debt

665

Total Liquidity 907

Interest Deferral Covenants Leverage Ratio (Less than 3.0x)

Interest Cover Ratio (Greater than 4.0x)

0.0x

0.5x

1.0x

1.5x

2.0x

0

500

1,000

1,500

2,000

2,500

3,000

Net

Debt/E

BIT

DA

Headro

om

($m

)

Headroom Net Debt

Headroom EBITDA

Leverage Ratio

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

0

200

400

600

800

EB

ITD

A/N

et

Inte

rest

Headro

om

($m

)

Headroom EBITDA

Headroom Net Interest

Interest Cover Ratio

Hybrid ASX: AGLHA

Size $650m

Issue Date 04/04/2012

First Call Date 08/06/2019

Maturity Date 08/06/2037

Interest Margin 3.80% p.a.

Frequency Quarterly

Trading Margin Performance LTM

2.00%

2.25%

2.50%

2.75%

3.00%

3.25%

3.50%

3.75%

4.00%

Se

p-2

015

Oct-

2015

Nov-2

015

Dec-2

015

Jan

-2016

Fe

b-2

016

Ma

r-2016

Ap

r-2016

Ma

y-2

016

Jun

-2016

Jul-2

016

Au

g-2

016

Se

p-2

016

Source: Company Data, BondAdviser Estimates

AGL Energy AGL is one of Australia’s largest utility groups, generating and distributing electricity and

gas to both retail and wholesale markets. It buys and sells natural gas, electricity, and energy-related products and services and constructs and/or operates power generation and energy processing infrastructure.

In recent years, volatility in commodity prices has made exploration and production complex and number of projects are arguably no-longer viable. AGL did not overly commit to its gas business and as a result, the group made the strategic decision that natural gas assets will no longer be a core business. As a result, AGL has refocused on its core operations of generating and distributing energy and has left the company in a better financial position than its major competitors (i.e. Origin Energy).

Overall, their ability to maintain a strong operating performance during a period (last 5 years) where electricity demand has fallen in Australia is a testament to management and we expect the group to move to a less carbon-intense portfolio over time.

We note that AGL recently discontinued its rating with S&P and any equity credit once attributable to AGLHA is no longer available. However, under the legal documentation, the notes cannot be called prior to the scheduled call date in June 2019.



APA Group Summary Financials


Revenue 1,332 1,540 2,074 Capital Structure Operating EBITDA 747 822 1,331 Unsecured – Bank Loans

708

Net interest -324 -357 -502 Unsecured – Non-AUD Notes 7,826

Operating Cashflow 432 562 862 Unsecured – Domestic Notes 615

Dividends paid -301 -303 -440 Unsecured – Other 107

Capex -447 -396 -334 Subordinated Debt (Hybrid) 515

Free cash flow -316 -137 87 Total Debt 9,771

Deferred Borrowings Costs 47

Bank Facility Covenants Foreign Currency Hedges -687

Adj. Gearing (%) 64.2 63.7 66.4 Adjusted Debt 9,037

Adj. EBITDA/Net Interest (x) 2.31 2.59 2.60 Cash & Liquids -85


Credit Metrics

Equity 4,029

Net Debt/EBITDA (x) 6.3 10.8 7.2 Interest Coverage (x) 2.3 2.4 2.6 Liquidity facilities Gearing (%) 65.7 65.3 69.0 Cash & Liquids

85

Dividend Payout Ratio (%) 91.3 67.4 53.6 Syndicated Bank Facilities

669

Net Debt to Equity (%) 188 203 239 Total Liquidity 754

Bank Facility Covenants Gearing Ratio (Less than 75%)


40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

0

2000

4000

6000

8000

10000

Gearing

Headro

om

($m

)

Headroom Net Debt

Headroom Equity

Gearing Ratio

2.00x

2.25x

2.50x

2.75x

3.00x

0

100

200

300

400

500

600

700

800

Inte

rest

Cover

Headro

om

($m

)

Headroom Adj. EBITDA



Hybrid ASX: AQHHA

Size $515m





Frequency Quarterly


1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Se

p-2

015

Oct-

2015

Nov-2

015

Dec-2

015

Jan

-2016

Fe

b-2

016

Ma

r-2016

Ap

r-2016

Ma

y-2

016

Jun

-2016

Jul-2

016

Au

g-2

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Se

p-2

016


APA Group APA is an Australian utility group which owns and operates natural gas assets (valued at

$19 billion). APA’s primary business is its pipelines (division known as Energy Infrastructure) but the group also has interests in gas storage facilities, gas-fired power stations and wind farms. The majority of group revenue is derived from capacity charge contracts (75%) which is fixed over the term of the agreement.

The Eastern Australian gas market has been subject to unprecedented change with the renewal of long term gas supply arrangements and commencement of all LNG projects in Gladstone. As a result, regulating entities have begun a series of reviews into the sector. A key recommendation made by the ACCC was to revisit the regulatory coverage of pipelines as the report found pricing was largely unconstrained by either threat of regulation or effective competition.

Over the long term, APA’s market power and earnings growth is likely to diminish as the regulatory scope for gas transmission increases but the end result should ultimately lead to less leverage, more risk controls and increased cashflow transparency which is a positive for credit investors.

We do not expect APA to reflect the same level of acquisitive behaviour as displayed in the past few years (ACCC likely to block) and leverage should progressively decrease over time.



*No Reported Covenants

Caltex Australia Summary Financials

(A$m) Year ended 31 December 2014 2015 LTM 1H16

Revenue 24,321 20,027 18,792 Capital Structure Operating EBITDA 409 1,007 939 Secured – Finance Leases 1


15

Operating Cashflow 662 885 1,021 Unsecured – Domestic Notes 150

Dividends paid -100 -262 -316 Subordinated Debt (Hybrid) 546

Capex -415 -447 -401 Total Debt 712

Free cash flow 147 176 305 Deferred Borrowings Costs 4

Adjusted Debt 716

Credit Metrics

Cash & Liquids -19

Net Debt/EBITDA (x) 1.6 0.4 0.7 Adjusted Net Debt 693

Interest Coverage (x) 3.7 13.1 16.5 Equity 2,630

Gearing (%) 20.2 13.4 20.9

Dividend Payout Ratio (%) 38.3 52.5 52.3 Liquidity facilities

Net Debt to Equity (%) 25.2 15.5 26.3 Cash & Liquids

19

Syndicated Bank Facilities

850

Inventory Facility 235

Total Liquidity 1,104

Hybrid ASX: CTXHA

Size $550m





Frequency Quarterly


1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Se

p-2

015

Oct-

2015

Nov-2

015

Dec-2

015

Jan

-2016

Fe

b-2

016

Ma

r-2016

Ap

r-2016

Ma

y-2

016

Jun

-2016

Jul-2

016

Au

g-2

016

Se

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016


Caltex Australia As the largest listed oil refiner in Australia you would expect that this volatility in energy

prices would impact Caltex’s bottom line. The reality is the opposite as in effect Caltex is now purely a refiner and distributor. The group operates one oil refinery, the Lytton refinery in Brisbane that primarily produces petrol, diesel and jet fuel. Along with other products bought on the open market, Caltex then markets and distributes these products across retail and commercial channels. As a result, the company operates in two distinct segments: Lytton and Supply & Marketing.

As refiner margins have returned to a more sustainable range, Caltex have outlined a key strategy moving forward will be enhancing their convenience store experience in attempt to engage their next stage of earnings growth. Given the opportunity for strategic acquisitions (i.e. Woolworths, BP and 7-Eleven), debt funded consolidation could pose a risk to Caltex’s credit profile. However, due to the group’s strong market share in this industry (18% retail and 35% wholesale), we believe any corporate activity would be heavily scrutinised by the ACCC.

In terms of the group’s core business (refining and distribution) we believe Caltex is implementing the correct procedures and policies to protect product margins. As a result, a steady earnings trajectory should be attainable as the supply chain efficiencies are realised and a more optimal product mix is implemented.



Crown Resorts Summary Financials


Revenue 3,094 3,484 3,616 Capital Structure Operating EBITDA 783 825 856 Secured – Finance Leases

128

Net interest -109 -161 -185 Unsecured – Bank Loans 76

Operating Cashflow 702 635 483 Unsecured – EUR Notes 175

Dividends paid -270 -270 -379 Unsecured – Domestic Notes 750

Capex -402 -600 -557 Subordinated Debt (Hybrid) 1,133

Free cash flow -31 -235 -453 Total Debt 2,261


Interest Deferral Covenants Adjusted Debt 2,290

Relevant Gross Debt/EBITDA (x) 1.9 2.8 2.0 Cash & Liquids -2991

EBITDA/Relevant Net Interest (x) 8.6 5.7 3.2 Adjusted Net Debt 1,991

Equity 5,152

Credit Metrics


450

Dividend Payout Ratio (%) 41.1 70.0 55.7 Undrawn Bank Facilities

1,289

Net Debt to Equity (%) 42.1 53.5 34.4 Total Liquidity 1,739

1Adjusted for working capital requirements


Interest Coverage Ratio (Greater than 3.0x)

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

0

200

400

600

800

1,000

1,200

1,400

Gro

ss D

ebt/E

BIT

DA

Headro

om

($m

)

Headroom Gross Debt

Headroom EBITDA

Leverage Ratio

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

0

50

100

150

200

250

300

350

EB

ITD

A/N

et

Inte

rest

Headro

om

($m

)

Headroom EBITDA



Hybrids ASX: CWNHA ASX: CWNHB

Size $532m $630m

Issue Date 14/09/2012 23/04/2015

First Call Date 14/09/2018 23/07/2021

Maturity Date 14//09/2072 23/04/2075

Interest Margin 5.00% p.a. 4.00% p.a.

Frequency Quarterly Quarterly


0.00%

5.00%

10.00%

15.00%

20.00%

CWNHA CWNHB


Crown Resorts Crown Resorts is a multinational gaming and entertainment group that has interests

predominantly in casinos. Wholly owned assets include Crown Melbourne and Crown Perth in Australia, and Crown Aspinall’s in London. Another significant interest in the group’s portfolio is its Melco Crown Entertainment investment. Melco Crown operates casino and hotel properties in Macau. The group also has a wagering division.

The credit outlook for Crown is tied to the uncertainty surrounding its large capital expenditure pipeline (Including Alon Las Vegas and the Melbourne Queensbridge Hotel Tower) and how the group intends to fund these projects without increasing leverage above rating agency thresholds.

In June 2016, Crown released its “initiatives to enhance shareholder value” to relieve some of this funding pressure. The proposal included a demerger and a potential public offering of a 49% interest in a property trust. The proposed demerger work is ongoing and the timeline is likely to remain long (originally 6-9 months from announcement). The end result is likely to lead to lower leverage and greater debt headroom (to fund projects) while maintaining the group’s credit rating. Management have commented that the board has approved the demerger but is yet to approve the property trust.



Goodman Group Summary Financials


Revenue 1,183 1,185 1,714 Capital Structure Operating EBITDA 668 724 887 Secured – Bank Loans 65

Net interest -118 -125 -168 Secured – Foreign Notes 95

Operating Cashflow 404 655 830 Unsecured – Bank Loans

307

Dividends paid -329 -304 -330 Unsecured – Foreign Notes 2,427

Capex -66 -62 -112 Total Debt 2,894


Partnership Debt (Off-Balance Sheet) 2,427

Senior Debt Covenants Adjusted debt 5,349

Net Liabilities/Net Tangible Assets (%) 28.0 26.1 20.1 Cash & Liquids 1,337

EBITDA/Net Interest (x)

5.9 6.0 5.5 Adjusted net debt 4,012

Preference Shares (GMPPA) 327

Credit Metrics

Other Equity 8,066

Net Debt/EBITDA (x)1 4.9 5.3 4.0 Total Equity 8,393

Interest Coverage (x) 6.7 4.4 7.8 Gearing (%)1 37.7 37.3 32.0 Liquidity facilities Dividend Payout Ratio (%) 54.2 32.1 33.3 Cash & Liquids

1,337

Net Debt to Equity (%)1 47.1 59.5 60.4 Revolving Bank Debt

1,258

Total Liquidity 2.595 1Debt adjusted for off-balance sheet managed partnership debt.

Senior Debt Covenants Gearing Ratio (Less than 55%)

Interest Coverage Ratio (Greater than 2.0x)

0%

5%

10%

15%

20%

25%

30%

0

1000

2000

3000

4000

5000

6000

2H

13

1H

14

2H

14

1H

15

2H

15

1H

16

2H

16

Adj. L

iabili

ties/A

dj. A

ssets

Headro

om

($m

)

Headroom Net Liabilities

Headroom Net Tangible Assets

Gearing Ratio

4.00x

4.50x

5.00x

5.50x

6.00x

6.50x

7.00x

0

100

200

300

400

500

600

EB

ITD

A/Inte

rest

Expense

Headro

om

($m

)

Headroom EBITDA

Headroom Interest Expense


Hybrid ASX: GMPPA

Size $327m



Maturity Date Perpetual


Frequency Quarterly


2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

Se

p-2

015

Oct-

2015

Nov-2

015

Dec-2

015

Jan

-2016

Fe

b-2

016

Ma

r-2016

Ap

r-2016

Ma

y-2

016

Jun

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Jul-2

016

Au

g-2

016

Se

p-2

016


Goodman Plus Trust (Goodman Group) Goodman Plus Trust is ultimately a subsidiary of Goodman Group by whom it is

guaranteed (see Appendix 2). Goodman is a multinational property group that develops and manages primarily industrial real estate. The group is divided into three segments, its property portfolio, its development business and its funds management platform. Goodman operates in Australia, the Asia Pacific, Europe and the Americas and investments span across a range of joint-ventures and wholly owned assets.

As a general rule, property groups that are involved in development activities are typically higher risk than groups that purely manage and invest. As a result, the group is currently in transition and shifting away from direct property development to a more capital light managed partnership structure. This effectively means the group shares the upside of projects in partnership but take less balance sheet risk.

On a consolidated basis (including off balance sheet debt inherent in joint project structures) the group’s leverage is higher than reported but through partnerships and subsequent risk diversification each dollar of additional debt is yielding a greater proportion of earnings (through fee structures). This has lead Goodman to reduce its debt position while improving its cash balance which we believe is the correct capital management policy at this point in the global real estate cycle (capitalisation rate compression slowing).



Brookfield Australia Property Trust Summary Financials

(A$m) Year ended 31 December 2014 2015 LTM 1H16

Revenue 213 218 250 Capital Structure Operating EBITDA 220 182 258 Secured – Bank Loans 1,303

Net interest -62 -62 -71 Unsecured – Other Loans

232

Operating Cashflow 135 173 179 Total Debt 1,535

Dividends paid -362 -493 -616 Deferred Borrowings Costs 1

Capex -29 -64 -61 Adjusted Debt 1,536

Free cash flow -255 -384 -497 Cash & Liquids 16


Credit Metrics

Preference Shares1 (MXUPA) 431

Net Debt/EBITDA (x) 5.7 1.8 1.9 Other Equity 1,817

Interest Coverage (x) 3.4 2.9 3.7 Total Equity 2,248

Gearing (%) 42.2 38.2 40.3

Dividend Payout Ratio (%) 69.7 71.4 - Liquidity facilities

Net Debt to Equity (%) 72.9 61.8 67.5 Cash & Liquids

16

Property Facilities

60

Total Liquidity 76

1Preference share equity capital reflects investment in Multiplex Hybrid Investment Trust (see Appendix 2)


Hybrid ASX: MXUPA

Size $450m





Frequency Quarterly


5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

Se

p-2

015

Oct-

2015

Nov-2

015

Dec-2

015

Jan

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Fe

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016

Ma

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016


Multiplex SITES Trust Multiplex group is a fully integrated and diversified business, with operations in property

development, construction, property funds management, infrastructure management. Multiplex has offices located throughout Australia and offices in the United Kingdom, New Zealand and the United Arab Emirates. It was acquired by Brookfield Asset Management (a Canadian listed company) in October 2007 and subsequently delisted in November 2007.

Brookfield Funds Management Limited is the responsible entity of Brookfield Australia Property Trust (BAPT) and is a member of Brookfield Australia Investments Group. BAPT’s property assets provide the distributable interest for Multiplex SITES (see Appendix 2).

Brookfield’s Australian operations are not particularly transparent and the group structure is complex. The trust has done a number of inter-company transactions and currently parent loans have been extended by 12 months. As a result, it difficult to formalise a view on pure fundamental analysis without more information about other Australian Brookfield subsidiaries.



Nufarm Summary Financials

(A$m) Year ended 31 July 2014 2015 2016 2H16

Revenue 2,623 2,737 2,791 Capital Structure Operating EBITDA 281 317 372 Secured – Finance Leases 12

Net interest -64 -68 -88 Secured – Bank Loans 372

Operating Cashflow 268 229 137 Unsecured – Bank Loans

99

Dividends paid -18 -21 -25 Unsecured – Foreign Notes 429

Capex -104 -111 -142 Unsecured – Other Loans 4

Free cash flow 146 97 -30 Total Debt 908


Credit Metrics

Adjusted debt 916

Net Debt/EBITDA (x) 1.8 1.7 1.7 Cash & Liquids -281

Interest Coverage (x) 3.5 3.9 2.2 Adjusted net debt 935

Gearing (%) 24.2 25.0 28.7 Preference Shares (NFNG) 247

Dividend Payout Ratio (%) 83.3 85.5 180.3 Other Equity 1,303

Net Debt to Equity (%) 31.9 33.4 40.3 Total Equity 1,550

Liquidity facilities Cash & Liquids

281

Revolving Bank Debt

902

Total Liquidity 1,184



Hybrid ASX: NFNG

Size $251m





Frequency Semi-Annual


4.75%

5.00%

5.25%

5.50%

5.75%

6.00%

Se

p-2

015

Oct-

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Nov-2

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Nufarm Nufarm is a global agricultural chemical company that manufactures a range of crop

protection products. These products include herbicides, insecticides and fungicides. The group also has a minor interest genetically modified seed technology. Nufarm operates on a relatively even scale between Australia/New Zealand, Europe, South America and North America while having a smaller presence in Asia.

The global argi-chemical sector is currently in a state of consolidation and market participants are moving swiftly to gain market share, create synergies and cut costs. It is difficult to determine whether Nufarm will be an acquirer, be acquired or not participate at all. The group’s future credit profile is largely dependent on this outcome. However, a potential takeover/acquisition will largely depend on the actions of Sumitomo (23% shareholding) and given the synergies between the two companies, we expect Sumitomo to block offers or demand a significant premium.

On the other side of the equation, Nufarm has not ruled out future acquisitions. Management have stated global regulators may force global competitors to divest assets to prevent industry concentration. Of particular interest is the recent mega Bayer-Monsanto merger which is still in the approval process. If regulatory pressure forces the newly formed company to sell assets, Nufarm may choose to participate and increase market share in Europe and North America where it is exhibiting strong growth.



Origin Energy Summary Financials


Revenue 12,363 11,893 11,923 Capital Structure Operating EBITDA 1,606 1,662 1,635 Secured – Finance Leases 9


734

Operating Cashflow 2,227 1,833 1,404 Unsecured – Capital Market Borrowings 7,973

Dividends paid -555 -722 -418 Subordinated Debt (Hybrid) 900

Capex -645 -1,484 -572 Total Debt 9,616

Free cash flow 1,027 -373 414 Deferred Borrowings Costs 10

Foreign Currency Hedges -339

Interest Deferral Covenants Adjusted Debt 9,287

EBITDA/Relevant Net Interest (x)

5.4 5.8 8.9 Cash & Liquids -146

Adj. Net Debt/EBITDA1 (x) 3.9 4.0 5.0 Adjusted Net Debt 9,141

Equity 14,530 14,530

Credit Metrics


146

Adj. Dividend Payout Ratio (%) 103.9 92.6 107.8 Revolving Bank Debt

6,700

Net Debt to Equity (%) 60.4 83.5 62.8 Total Liquidity 6,846

1On the 26th of June 2013 Origin Energy removed the Leverage Ratio calculation as a mandatory deferral covenant.

Interest Deferral Covenants Interest Coverage Ratio (Greater than 3.5x)

Leverage Ratio1

(Less than 4.0x)

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

0

100

200

300

400

500

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A/N

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Headro

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($m

)

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0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

Adj. N

et

Debt/E

BIT

DA

Headro

om

($m

)

Headroom EBITDA

Headroom Net Debt

Leverage Ratio

Hybrid ASX: ORGHA

Size $900m





Frequency Quarterly


2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Se

p-2

015

Oct-

2015

Nov-2

015

Dec-2

015

Jan

-2016

Fe

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016

Ma

r-2016

Ap

r-2016

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Origin Energy Origin Energy is an energy company that engages in energy retailing, power generation,

and natural gas production businesses in Australia, New Zealand, and internationally. The company operates through Energy Markets and Integrated Gas segments.

Origin is heavily committed to its Australia Pacific Liquefied Natural Gas (APLNG) project and as a result of falling prices the project is unlikely to be as profitable as originally thought. The significant investment required for the project left the group with heightened debt levels.

The group’s Energy Markets business continues to generate strong cashflow and the recent uplift in oil prices from February lows is supporting the LNG project’s viability. In the background, the group has significantly deleveraged its balance sheet via an $800 million asset divestment program and $2.5 billion equity raising in late 2015.

In August, Origin Energy reconfirmed for the third time their commitment to calling the Origin Energy subordinated notes at the first optional call date in December 2016. At the full year results the company decided not to pay a final dividend and to use the funds to redeem the notes. This is as strong a commitment they can make and given the backup banking facilities in place to fund this redemption, we are confident there is no redemption risk.



Ramsay Health Care Summary Financials


Revenue 4,909 7,355 8,684 Capital Structure Operating EBITDA 752 1,106 1,269 Secured – Finance Leases 260

Net interest -75 -121 -132 Secured – Bank Loans 1,481

Operating Cashflow 562 746 905 Secured – Other 9

Dividends paid -166 -304 -235 Unsecured – Bank Loans 1,665

Capex -246 -486 -510 Unsecured – Other 30

Free cash flow 150 -44 160 Total Debt 3445

Foreign Currency Hedges 64

Credit Metrics

Adjusted debt 3,509


Interest Coverage (x) 9.7 8.8 9.2 Adjusted net debt 3,179

Gearing (%) 40.8 60.7 60.3 Preference Shares (RHCPA) 260

Dividend Payout Ratio (%) 59.0 54.6 53.5 Other Equity 1,786


Liquidity facilities Cash & Liquids

329

Revolving Bank Debt

584

Total Liquidity 913


Hybrid ASX: RHCPA

Size $260m





Frequency Semi-Annual


4.50%

4.60%

4.70%

4.80%

4.90%

5.00%

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Ramsay Health Care Ramsay Health Care operates 212 medical facilities across Australia, the UK, France,

Indonesia and Malaysia. The group’s revenue mix comprises primarily patient revenue but additional income is also derived from real estate rental income and income from ancillary services. As organic growth in health care is underpinned by demographics, acquisitions and developments are the primary source of the group’s earnings growth.

The recent completion of brownfield developments and the Générale de Santé & HM Group acquisitions have resulted in an improvement in cash flow. Coupled with the retention of earnings (reduced dividends), this has led a slight improvement in credit metrics. The group’s net leverage still remains high compared to 2011-2014 but given management’s strong track record in finding value through acquisitions while maintaining a healthy balance, we remain comfortable with the group.

The fundamentals and demographics of the health care industry remain attractive and this is reflected in the group’s low-risk growth. Management have now entered the Australian pharmaceutical market and with 70 hospitals as a feeder network, we expect this strategy to perform well. Overall, the health care industry remains one of the most defensive choices for investment due to its low cyclicality of revenue as demand is shielded from general macroeconomic cycles and this is reflected by the long-term performance of RHCPA.



Seven Group Summary Financials


Revenue 1,561 2,755 2,838 Capital Structure Operating EBITDA 423 377 341 Secured – Finance Leases 2


987

Operating Cashflow 245 287 314 Unsecured – USD Notes 749

Dividends paid -149 -146 -140 Unsecured – Domestic Notes 0

Capex -91 -110 -49 Total Debt 1,738


Foreign Currency Hedges -74

Credit Metrics

Adjusted debt 1,668


Interest Coverage (x) 4.3 3.7 3.6 Adjusted net debt 1,301

Gearing (%) 25.9 32.3 33.9 Preference Shares (Hybrid)

427

Adj. Dividend Payout Ratio

Dividend Payout Ratio (%)

54.1 67.8 71.4 Other Equity

2,228

Net Debt to Equity (%) 34.0 47.9 51.3 Total Equity

2,655

Liquidity Facilities

Cash & Liquids

367

Undrawn Debt Facilities

995

Total Liquidity

1,943


Hybrid ASX: SVWPA

Size $496m





Frequency Quarterly


7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

13.00%

Se

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Seven Group Holdings Seven Group is a diversified conglomerate with interests in the media, mining and

construction industries. However, the group’s investments in Westrac and Seven West Media are greatest contributors to earnings. Westrac Group is the sole authorised dealer for Caterpillar equipment in parts of Australia and parts of China and derives revenue from product sales and product support. Seven West Media (in which Seven Group has a 41% equity stake) generates revenue from advertising services. Seven Group’s chairman, Kerry Stokes, owns ~70% of Seven Group.

Seven continues to move the goalposts in terms of what their operating business model includes and given the recent move into energy and mining services we expect the credit profile of Seven Group Holdings will deteriorate in the short to medium term due to a combination of factors. These factors include weak trading conditions in the mining sector, poor revenue from traditional advertising channels in the media space, and an ambitious venture into oil & gas exploration which is yet to show any signs of performance.

The group continues to generate stable positive cashflows which is supported by a considerable amount of liquidity on balance sheet. As a result, we expect Seven will be able to manage the business through a period of earnings volatility in line with the current economic cycle.



Tabcorp Summary Financials


Revenue 2,040 2,156 2,189 Capital Structure Operating EBITDA 486 508 516 Unsecured – Bank Loans

537

Net interest -100 -80 -70 Unsecured – USD Notes 295

Operating Cashflow 387 400 401 Subordinated Notes (Hybrid) 249

Dividends paid -67 -358 -173 Total Debt 1,080

Capex -198 -132 -183 Deferred Borrowings Costs 5

Free cash flow 122 -90 45 Foreign Currency Hedges -84

Adjusted Debt 1,001

Interest Deferral Covenants Cash & Liquids -126

Relevant Gross Debt/EBITDA (x) 1.8 1.8 1.7 Adjusted Net Debt 875

EBITDA/Relevant Net Interest (x) 6.5 8.9 8.5 Total Equity 1,688

Credit Metrics

Liquidity facilities Net Debt/EBITDA (x) 2.0 1.9 1.4 Cash & Liquids

126

Interest Coverage (x) 4.8 6.3 7.1 Revolving Bank Debt

410

Gearing (%) 39.5 36.9 36.1 Total Liquidity 536

Dividend Payout Ratio (%) 93.0 117.9 117.6

Net Debt to Equity (%) 65.3 58.4 56.5



0.0x

0.5x

1.0x

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2.0x

2.5x

0

100

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Gro

ss D

ebt/E

BIT

DA

Headro

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($m

)

Headroom Gross Debt

Headroom EBITDA

Leverage Ratio

0.0x

2.0x

4.0x

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8.0x

10.0x

0

50

100

150

200

EB

ITD

A/N

et

Inte

rest

Headro

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($m

)

Headroom EBITDA



Hybrid ASX: TAHHB

Size $250m





Frequency Quarterly


0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%

Se

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015

Oct-

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Nov-2

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Dec-2

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Tabcorp Holdings Tabcorp is an Australian gambling entertainment company that operates in three major

segments, Wagering & Media, Gaming Services and Keno. Wagering & Media includes the group’s betting operations, Gaming Services refers to the group’s secure long term gaming licenses (pokies) with the NSW and VIC state governments and Keno is the company’s lottery arm. The group’s activities are conducted in highly regulated industries.

From an operational point of view, Tabcorp is under pressure from shifts in consumer preferences and increased digital competition. As a result, the group will need to fund continual growth initiatives to maintain its market share as the sector evolves. In our opinion, Tabcorp is in a strong position to do so and have started with the launch (Q4 2016) of their new online wagering and gaming business 'Sun Bets' in the UK. This has been followed by the proposed acquisition of Intecq (a technology-based gaming company).

There is no doubt that the business is experiencing pressure on its retail wagering business but to management’s credit the balance sheet has improved markedly. Currently the company has sufficient capacity to call the hybrid from cash and bank facilities ($536 million) and has considerable headroom on its interest deferral covenants. For this reason, we expect Tabcorp to comfortably redeem the hybrids in March 2017.



Woolworths Summary Financials


Revenue 60,733 58,812 58,086 Capital Structure Operating EBITDA 4,772 4,948 3,586 Unsecured – Finance Leases 3

Net interest -352 -298 -337 Unsecured – Bank Loans 891

Operating Cashflow 3,473 3,345 2,358 Unsecured – EUR Notes 265

Dividends paid -1,523 -1,567 -1,217 Unsecured – USD Notes 1976

Capex -1,899 -2,173 -1,983 Unsecured – Domestic Notes 497

Free cash flow 51 -395 -843 Subordinated Debt (Hybrid) 699

Total Debt 4,331

Credit Metrics1


Net Debt/EBITDA (x) 2.8 2.8 3.5 Operating Leases 16,271

Interest Coverage (x) 17.2 19.5 14.6 Adjusted Debt 20,618

Gearing (%) 63.9 63.1 63.1 Cash & Liquids -948

Adj. Dividend Payout Ratio (%) 69.7 71.2 63.9 Adjusted Net Debt 19,670


Liquidity facilities

Cash & Liquids

948

Revolving Bank Debt

3,540 1Adjusted for off-balance operating leases Total Liquidity 4,488


Hybrid ASX: WOWHC

Size $700m





Frequency Quarterly


-1.00%

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1.00%

2.00%

3.00%

4.00%

5.00%

Se

p-2

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Woolworths Woolworths is a major Australian retailer and is the second largest Australia company in

terms of revenue. Its main operations are its food and liquor business which comprises its extensive supermarket network across Australia and New Zealand and liquor retailers BWS and Dan Murphy’s. The group also has interests in Hotels (ALH Group) and General Merchandise (Big W).

Increasing supermarket competition and balance sheet damage from its investment in its home improvement business was the reason for a credit rating downgrade from both Moody’s and S&P in 2016. A turnaround in Woolworth’s Food & Liquor business will be a key priority to repair the group’s credit profile but this will be challenging given the current price war between competitors (i.e. Aldi, Coles).

To support the balance sheet, the group has elected to implement a dividend reinvestment program with proceeds relating to the final dividend being used to offset the equity component of the subordinated notes. As a result, management have elected to redeem all of the notes in late November which will most likely be funded out of senior debt facilities at lower interest rate.



Appendix 1: Accounting Treatment of Hybrids Each issuer treats its hybrid capital as either debt or equity. Ultimately, this decision dependent on tax considerations, regulation administered by the Australian Securities & Investment Commission (ASIC) and the overall structure of the security (i.e. subordinated note, preference share etc.). See below for each company’s relevant accounting treatment. Accounting treatment can differ from the credit rating treatment (i.e. equity credit).

Figure 28. Accounting Treatment of Hybrids

Company Treatment

AGL Energy

Debt

APA Group

Debt

Caltex Australia

Debt

Crown Resorts

Debt

Goodman Group Equity

Multiplex SITES Equity

Nufarm Equity

Origin Energy

Debt

Ramsay Health Care Equity

Seven Group Holdings Equity

Tabcorp Holdings Debt

Woolworths Debt

Source: Company Reports

Figure 29. Credit Agency Treatment of Hybrids

Company Treatment

AGL Energy

No Applicable Credit Rating

APA Group

50% Debt / 50% Equity

Caltex Australia


Crown Resorts


Goodman Group No Applicable Credit Rating

Multiplex SITES No Applicable Credit Rating

Nufarm 50% Debt / 50% Equity

Origin Energy


Ramsay Health Care No Applicable Credit Rating

Seven Group Holdings No Applicable Credit Rating

Tabcorp Holdings 50% Debt / 50% Equity

Woolworths 50% Debt / 50% Equity

Source: Prospectuses, Company Reports



Brookfield Australia Investments Group

Brookfield Australia Investments Limited Brookfield Australia Property Trust

Brookfield Funds Management Limited

Multiplex Hybrid Investment Trust


Stapled Security (Unlisted)

Source: BondAdviser, Prospectus

Source: BondAdviser, Prospectus

Appendix 2: Trust Structures

Goodman Preferred Step-Up Units

Goodman Funds Management Limited, as responsible entity of Goodman PLUS Trust, issued Perpetual Listed Unsecured Securities (Goodman PLUS) which subsequently became Goodman PLUS II in September 2012. This security structure is part of a complex web of trusts, companies and guarantees but ultimately the security obligations have a guarantee from Goodman Group on a subordinated and unsecured basis. This guarantee comprises separate guarantees from Goodman Limited, Goodman Logistics (HK) Limited and Goodman Industrial Trust RE Limited (which is the responsible entity for Goodman Industrial Trust). Together these entities form Goodman Group.

Figure 28. Goodman Plus Trust Structure

Multiplex SITES Multiplex Funds Management Limited, as Representative entity of Multiplex SITES Trust, issued Step-up Income distributing Trust issued Exchangeable Securities (Multiplex SITES) (ASX Code: MXUPA). Multiplex was acquired by Brookfield Asset Management (a Canadian listed company) in October 2007 and subsequently delisted in November 2007. Multiplex SITES Trust is an income distributing trust with no operations. Its only activity is investment in units in Multiplex Hybrid Investment Trust which it receives distributions from accordingly. Multiplex Hybrid Investment Trust receives interest from a loan made to Brookfield Australia Property Trust. Brookfield Funds Management Limited is the responsible entity of Brookfield Australia Property Trust (BAPT) and is a member of Brookfield Australia Investments Group. In its capacity as responsible entity, it guarantees any distributions which have been declared payable by the Trust. Figure 29. Multiplex SITES Trust Structure

Goodman Group

Goodman Industrial Trust Goodman Logistics (HK) Limited Goodman Limited

Goodman Plus Trust

Stapled Security (ASX: GMG)

Goodman Industrial Trust Responsible Entity Limited

Goodman Funds Management Limited



Appendix 3: Non-Called Hybrids

Nufarm Subordinated Step-Up Securities (NFNG) On the 24th of November 2006 Nufarm Finance (NZ) Limited issued, Nufarm Step-Up Securities (NSS) (ASX Code: NFNG) raising $251 million. The interest margin was set at 1.90% p.a. above the 180-Day BBSW until the 24th of November 2011 (Step-Up Date).

On the 22nd of September 2011, the issuer announced that it would not issue a re-marketing process invitation prior to Step-Up date and therefore the margin was increased to 3.90% p.a. effective from the Step-Up date. As NFNG is treated as equity by Nufarm, the group outlined that the securities continue to represent an efficient form of capital under its capital management strategy.

There were no changes to the terms of issue and no further step-up dates scheduled. Nufarm may redeem or exchange NSS on any distribution date subsequent to step-up date.

Multiplex SITES (MXUPA) On 19th January 2005 Multiplex Funds Management Limited, as Representative entity of Multiplex SITES Trust, issued Multiplex SITES (ASX Code: MXUPA) raising $450 million. The initial interest rate margin was set at 1.90% above the 90-Day BBSW until the 1st of April 2010 (Step-Up Date).

On the 22nd of February 2010, the issuer announced that it would not redeem Multiplex SITES at the Step-Up date and therefore the margin was increased to 3.90% p.a. effective from the Step-Up date.

SITES are redeemable or exchangeable at the election of the issuer at any quarterly distribution period, or in other special circumstances.

Ramsay CARES (RHCPA) On 24th May 2005 Ramsay Health Care Limited issued, Convertible Adjustable Rate Equity Securities (CARES) (ASX Code: RHCPA) raising $260 million. The interest margin was initially set at 2.85% p.a. above the 180-Day BBSW until 20th October 2010 (First Exchange Date/Step-Up date).

On the 26th August 2010, Ramsay announced that it would not convert or redeem these securities and therefore the margin was increased to 4.85% p.a. in line with Ramsay’s then capital management programme. This new margin remains effective from the step-up date for perpetuity in accordance with the terms of the issue.

Ramsay has the option (but not the obligation) to convert or exchange CARES on any distribution date subsequent to step-up date and at other times in specific circumstances.

Seven Group TELYS4 (SVWPA)

On the 30th of April 2010 Seven Network Limited proposed a scheme or arrangement between Seven Network Limited and WesTrac Holdings Pty Limited to form Seven Group Holdings Limited (SVW). As part of this scheme holders of TELYS3 would be exchanged into Transferable Extendable Listed Yield Shares (TELYS4) which has separate terms and conditions outlined in the Scheme booklet. The interest margin on this security was initially set at 2.50% p.a. above 180-Day BBSW until the step-up date (31 May 2010) after which time the interest margin increased to 4.75% p.a. until redemption or conversion.



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Corporate Hybrids - BondAdviser · 2016-10-18 · Hybrids can Hybrids: Debt or Equity? be...

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