Tuesday 10 November 2015 by Justin McCarthy Trade opportunities

Six substantial subdebt bonds now available

Six new subordinated bonds have been added to the DirectBond list for wholesale clients and more are expected to follow in the coming weeks

Some issuers of subdebt in Australia

Over the past few weeks we have added six new bonds to the wholesale DirectBond list.

All six are subordinated bonds from well known Australian financial institutions and all are “new style” or Basel III compliant subordinated debt which contain a point of non-viability clause. For further information on the difference between “new style” and “old style” subordinated debt, please see the following link click here.

Subordinated debt (also known as Tier 2 capital) ranks below senior unsecured debt in the capital structure. Whilst it is typically callable, meaning that there is a chance it can be extended past its first call date, subordinated bonds must have a legal maturity date, unlike Tier 1 hybrids. Also, interest payments are for the main part mandatory and in the unlikely event that the financial institution in question can defer an interest payment, any missed payments are cumulative, again unlike Tier 1 hybrids. 

Over recent years there has been a clear delineation in the market whereby the subordinated debt (Tier 2) has gravitated to the institutional dominated over the counter market, whereas higher risk Tier 1 hybrids have almost exclusively been sold in the retail dominated ASX listed market. 

Recent moves by APRA to push Australian banks to improve their capital positions, particularly via further equity raisings, has increased the buffer below subordinated debt and significantly improved the risk reward parameters. This development has been a major force behind the addition of the following subordinated bonds with more to follow in coming weeks. 

Here are the bonds now available:

Issuer Sector Factsheet Maturity/call date
Australia and New Zealand
Banking Group Limited (ANZ)
Major bank   ANZ Floating Rate AUD Subordinated Bond 10 year non-call 5 year
Bendigo and Adelaide Bank Limited (Bendigo Bank)  Regional bank  Bendigo and Adelaide Floating Rate AUD Subordinated Bond  10 year non-call 5 year 
Genworth Financial Mortgage
Insurance (Genworth Australia)
Insurer Genworth Australia Floating Rate AUD Subordinated Bond 10 year non-call 5 year
Insurance Australia Limited
Insurer Insurance Australia Floating Rate AUD Subordinated Bond 26 year non-call 5 year
Members Equity Bank Limited
(ME Bank)
Regional bank Member’s Equity Bank Limited AUD Tier 2 Subordinated Bond 10 year non-call 5 year
Westpac Banking Corporation
Major bank  Westpac Floating Rate AUD Subordinated Bond 10 year non-call 5 year 

Please contact your FIIG representative for more information.