New NAB 10NC5 Bond Pays 6.163%

New NAB 10NC5 Bond Pays 6.163%

Hot on the heels of ANZ’s successful Tier 2 subordinated bond issue, NAB has also issued a Tier 2 bond this week. The new issue raised A$1.25 billion.

The issue had two tranches, both had a 10NC5 structure. That is, have a minimum five-year term but the term can be extended out to 10 years. The tranches include:

  1. A fixed to floating rate tranche issued at 6.163%, a margin of 217 basis points over semi quarterly swap. Total volume was $950 million.
  2. A floating rate tranche, issued at the same margin for $300 million.

Also read: Telstra Capital Raise With Senior Bond

Subordinated bond investors are paid a higher yield compared to senior unsecured bonds given:

  • Subordinated bonds rank behind senior bonds in the priority of payments should the bank get into financial difficulty
  • Senior bonds have a definite maturity date, often five years, although terms have been increasing
  • The bank needs to ask APRA for approval to repay the subordinated bond at the non-call date

Subordinated bonds are meant to help protect the bank in case of financial difficulty and convert to equity if APRA deems the bank as ‘non-viable’. In that scenario, it’s thought investors would likely lose most, if not all, of their capital. The conversion is meant to protect senior bonds holders and ensure survival of the bank.

The subordinated bond issue was rated by S&P Global or equivalent as BBB+, was issued in the wholesale over-the-counter market and was not made available to retail investors.

Previous article AUD Weaker On Soft GDP Report, CPI Up Next
Next article CBA Joins The Sub-Debt Party, Bond Pays 6.704%
Elizabeth Moran
Editorial Director
Elizabeth is a nationally-recognised independent expert on fixed income. She has more than 25 years experience in banking and financial institutions in Australia and the UK and has been published in every major Australian newspaper and investment website. Prior to becoming an independent commentator in 2019 she spent more than 10 years as the head of education and research at fixed income broker FIIG Securities. Prior to joining FIIG, Elizabeth worked as an Editor/Analyst for Rapid Ratings a quantitative credit rating agency. She also spent five years in London, three working as a credit rating analyst for NatWest Markets.