Flexibility in funding

IFR Top 250 Borrowers Report 2011
4 min read

Macquarie’s ongoing ability to access capital markets with benchmark sized offerings via its numerous subsidiaries – coupled with its global distribution expertise – stood it in good stead when dealing with the funding challenges it endured following the global financial crisis. It has been creative in expanding its funding options with several cross-border deals, mainly focused on tapping the US investor base. Adam Tempkin reports.

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Macquarie’s considerable flexibility in meeting its refinancing requirements and repaying its debt via benchmark corporate-bond issues makes it a leading Asia Pacific-based borrower. Its banking subsidiary’s well-known dependence on non-deposit sources of funding has been a critical component of its survival and its investment-grade credit profile. But the creative strategies employed by several of its subsidiaries and related entities to expand its investor base are what really distinguished the company from its peers.

In July 2010 Macquarie Leasing used its distribution expertise in the US to sell the first US securitisation of Australian auto receivables via the US$500m SMART Series 2010-1US. “The transaction established access to the broader and more liquid US ABS market, diversifying Macquarie’s funding options and providing additional strategic flexibility going forward,” said John Cho, head of auto ABS at JP Morgan, which led the deal.

The deal was structured to appeal to US investors, differing slightly from other Australian ABS and from earlier deals launched under the SMART series. The conservative pool, the US dollar denomination and the pro rata principal repayment profile were all designed with US buyers in mind.

While the transaction was a “story credit”, requiring a fair amount of investor hand-holding, it was ultimately oversubscribed by American investors, paving the way for a repeat in March 2011.

That offering, the US$750m SMART Series 2011-1US Trust, was the second-ever US securitisation of Australian auto-lease receivables. A 144a transaction, it was structured by RBS, with JP Morgan and Macquarie leading the deal, and was ultimately increased from its original size of US$500m, pricing well inside initial guidance.

Although it was only the second auto deal from Macquarie to target American investors, it was the tenth time Macquarie Leasing had securitised a portfolio of auto-lease receivables from Australian residents. Investors admired the protections built into the deal, particularly the high credit enhancement from three sources: excess income, the liquidity reserve and the subordination of the junior notes.

Macquarie plans to tap the US market with auto collateral at least once a year, according to David Duzyk, the head of global securitised products at JP Morgan.

Macquarie Equipment Finance, an American mid-ticket leasing unit, also tapped the US market in March with its inaugural equipment leasing ABS transaction, the US$284.5m MEF 2011-A. The collateral was notable because although MEF conducts equipment leasing similar to others in the market, there were next to no losses in its portfolio.

Meanwhile, Macquarie racked up its first euro-denominated corporate deal since November 2006, pricing Lower Tier 2 paper in September 2010 via Barclays, HSBC and RBS. The €600m 10-year bullet came at 340bp over mid-swaps, with the leads referencing a range of comparables for price discovery. Macquarie’s own senior 10-year paper was trading in the high 200s over mid-swaps.

In January it rounded up investors again for a benchmark 10-year trade, with BarclaysCapital,Citigroup,Goldman Sachs and Macquarie joint books. The US$750m 6.25% tranche printed at 300bp, the mid-point of guidance, generating a book of around US$2bn.

At the end of March 2011 Macquarie came with a benchmark US$1bn of 10-year medium-term subordinated notes, rated A2/A–/A against the issuer’s A1/A/A+ ratings. Bank of America Merrill Lynch, Citigroup,JP Morgan and Macquarie were joint lead underwriters. The notes priced at 99.805 with a 6.625% coupon to yield Treasuries plus 320bp.

Other highlights from the last year include Macquarie’s March 2011 refinancing of £626m of debt from its subsidiary Moto, a UK service stations operator. The company was the most highly leveraged issuer to launch a high-yield bond since the credit crisis, and potentially opened up the market to other heavily indebted infrastructure firms. The debt included a £400m loan in conjunction with a high yield bond.

And Taiwan Broadband Communications, which is majority owned by Macquarie Korea Opportunities Fund, signed a NT$28.7bn-equivalent (US$893m) dual-tranche loan in July 2010, with leverage of seven times. The senior piece paid a maximum margin of 290bp over the secondary CP rate, while the mezzanine portion paid 825bp over Libor.