Lead manager and sole bookrunner ABN AMRO took two years of regulatory wrangling to bring the transaction to market and is calling it a first for Australia.
The 21 credit unions created two special purpose vehicles to act as issuing entities and then sold the securities to institutional investors following a two-day roadshow.
The Tier 2 component contained three tranches: A$33.5 million of senior AAA-rated notes, A$10 million of mezzanine BBB-rated notes and A$6.5 million of junior BB-rated notes. Each has a final maturity of 10-years with a call and step-up of 50bps at the five-year mark.
Peter Block, head of debt capital markets at ABN AMRO says the AAA-rated tranche was five to six times oversubscribed. ôThere was also plenty of appetite for the other tranches too with the BBB and BB notes being well covered,ö he says.
The rated notes were bought by a mix of domestic bond funds and superannuation funds, while the unrated preference shares were bought mainly by superannuation funds that valued the franking credits.
The preference shares priced at 250 basis points over the bank rate, while the AAA notes priced at +28bps, the BBB notes at +65bps and the BB notes at +165bps.
ôThere were a lot of regulatory hurdles that needed to be cleared in order to get this deal done,ö says Block. ôThe credit unions had to change their constitutions, we had to get the Australian bank regulator to ensure that the securities would qualify for inclusion in the credit unionsÆ regulatory capital, and we had to get the ratings agencies across the line.ö
The unique structure of the deal allowed the issuing unions to maintain their mutual status.
In Australia, credit unions are mutualised financial institutions that are often attached to a workersÆ union or a regional centre and whose main activity is providing residential mortgages to members.
The unions participating in the capital raising hail from four states with the largest single participant being the Victorian Teachers Credit Union. Each institution raised a different amount of capital - with the largest individual issuer being New England Credit Union.
ôWe can certainly see this structure being used by other entities in Australia, or by groups of small financial institutions in other jurisdictions,ö says Block.
Mallesons Stephen Jaques provided legal counsel on the deal.