After ANZ and NAB’s successful Tier 2 subordinated bond issues, CBA followed suit today, raising $1.75 billion. The bond is fixed to floating, and its issue yield was 6.704%, with a margin of 245 basis points over semi quarterly swap.
Like ANZ’s bond, it is longer-dated and pays a higher yield compared to the NAB issue which had a shorter term to maturity.
The issue had a single tranche with a 15NC10 structure. That is, the bond has a minimum non call, ten-year term but the term can be extended out to 15 years.
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.
Also read:
New NAB 10NC5 Bond Pays 6.163%
Telstra Capital Raise With Senior Bond
Subordinated bonds are meant to help protect the bank in case of financial difficulty and convert to equity if APRA deem 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.
