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The initial offer of Generator Notes has now closed. However, Generator Notes are expected to be quoted on the ASX on 19 May 2004.
Summary of the offer
Introducing a new generation in fixed interest securities… Generator Notes1.
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9.00%pa, paid quarterly for 5yrs
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an expected Standard and Poor's (S&P) credit rating of BBB
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no entry or management fees
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seeking listing on the ASX
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Returns linked to the credit risk on a portfolio of debt issued by 110 international and domestic investment grade companies
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No currency risk
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Minimum investment $5,000
| Key dates |
| Open Date |
5 April 2004
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| Close Date |
5 May 2004 |
| Issue Date |
12 May 2004 |
| Date of first interest payment |
3 months from the Issue Date |
| Maturity Date |
5 years from the Issue Date
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These dates and times are indicative only, Generator reserves the right to vary the date and times of the Offer, without prior notice, and to accept late applications.
What are Generator Notes?
Generator Notes* are simply fixed interest securities offering investors a competitive yield of 9.00%pa, paid quarterly for 5 years, coupled with one of the most dependable credit risk measures for this type of investment in the world – an S&P credit rating.
Generator Notes’ returns are derived from a portfolio of debt issued by 110 international companies – each of them with an Investment Grade credit rating (i.e. BBB- or higher) in their own right and a market capitalisation of $1 billion or more, such as:
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Rolls Royce
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Bayer
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Goldman Sachs
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Reuters
Generator Notes provide a leveraged, partially-protected investment in this portfolio. You are protected against the first 5 defaults in the portfolio of 110, but will lose your capital after 8 defaults.
A simple proposition
Australian investors consistently seek opportunities to secure high yielding investments without the traditional compromises on certainty, stable returns and clearly defined risk. Generator Notes offer just that.
9.00%pa, paid quarterly for 5yrs
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Delivers regular, consistent interest payments. Has a yield which compares favourably with the yield from income securities, hybrids and listed property trusts. 2.20% higher than the 6.80% average yield on rated fixed interest listed on the ASX as at 04/03/04.
Expected S&P credit rating of BBB
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An expected S&P BBB rating reflects an investment grade quality investment. A Protection Amount that protects investors against 5 defaults in the portfolio.
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Using past default rates, the default rate for the portfolio would have to be 70% worse than the worst 5yr period over the past 23 years before investors would have lost any principal*.
Certainty and clearly defined risks
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There is no manager risk or complex conversions. Generator Notes offer a fixed interest rate over a 5 year term.
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Simple to explain risks: no loss for 5 company defaults in the Portfolio. Some loss of principal and interest on the 6th default, 100% principal loss on the 9th company default.
* Source: Macquarie Group. Loss rate determined by applying the 35% recovery rate to the default rate. Historical default rate sourced from Standard & Poor’s. The implied default rate assumes that defaults are randomly distributed other than by credit rating. A portfolio of 110 securities may experience a more volatile pattern of defaults than the market as a whole.
Risk / Return equation
Generator Notes are designed to have higher returns than other income securities of the same credit rating. As you can see in the chart below, Generator Notes deliver a better return than the average return you could get from each rated class of income security currently available.
Generator Notes yield also compares favourably to the yield available from listed property trusts and hybrid issues as at 24/03/2004.
ASX listed income security yield as at 24/03/2004. Source: Macquarie Group.
What does Generator Notes’ BBB rating mean?
Whether a corporate bond, government bond, hybrid issue or income security, all fixed interest investments involve the risk that the underlying lender will default on the interest or principal repayments.
As with any investment, the higher this risk the higher the return you should seek as compensation.
Credit ratings provide an independent assessment of this risk and therefore provide a useful guide to assessing how much return you should demand from a rated investment.
Unfortunately, not all fixed interest investments are rated, making it difficult for individual investors to assess risk.
Standard & Poor’s credit rating
S&P evaluate all the features of Generator Notes and based on their expectations of the probability of default, provide Generator Notes with a credit rating.
Historically, Investment Grade companies have had default rates over a 5 year period of 1.31%, ranging from 0.10% for AAA securities (top rating) to 2.38% for BBB securities (one notch above the minimum required to be considered Investment Grade). Speculative Grade securities, by comparison, have averaged 21.58% over a 5 year period.
A BBB rating by S&P for Generator Notes implies a similar expectation of default to a corporate bond rated BBB.
An income generator for the fixed interest portion of a diversified portfolio
Generator Notes are secured fixed interest debt securities of the Generator Trust. They are an income generating investment which delivers an enhanced yield which compares favourably in terms of yield with all other listed income generating investments.
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As Generator Notes derive the majority of their interest from Australian bank bills they fit well into the Australian fixed interest portion of a diversified portfolio.
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The interest rate enhancement and the majority of the risk comes from the portfolio which references the debt of 110 domestic and international companies. This adds yield diversification to the domestic fixed interest portion of a portfolio.
Generator Notes use a Credit Linked Note to access the features of a collateralised debt obligation designed specifically for Generator.
Who is involved ?
- Macquarie Equities Limited (Macquarie) – Arranger of Generator Notes1
- Generator Investments Australia Limited (Generator) - Offeror of Generator Notes as trustee of Generator Australia No. 1 Trust. Generator is a wholly owned subsidiary of Macquarie Bank Limited.
- Generator Trust – Generator Australia No.1 Trust is an Australia resident trust.
- Generator Notes - Generator Notes are secured fixed interest debt securities of Generator. The Generator Notes constitute first ranking secured obligations of Generator, in its capacity as trustee of the Generator Trust. Holders of Generator Notes do not have any beneficial interest in the Generator Trust or any of the companies in the Portfolio.
- CLN Arranging Bank (“Note Arranger”) - Scotiabank (Ireland) Limited (“Scotia”), an indirect, wholly owned, subsidiary of Scotia, will arrange the CDO pursuant to which the CLN Issuer will issue the CLN.
Standard and Poor’s rating will be confirmed on the Issue Date. The Offer will not go ahead if Generator Notes do not receive a rating from Standard & Poor’s of at least BBB.
This information is provided for the use of financial advisers only. In no circumstances is it to be used by a person for the purposes of making a decision about investing in Generator Notes.
*Generator Notes are unsecured notes for the purposes of section 283 BH of the Corporations Act. They are secured by a floating charge over the assets of the Generator Trust.
Macquarie Equities Limited ABN 41 002 574 923 (MEL) trading as Macquarie Financial Services, Participant of Australian Stock Exchange Group, Australian Financial Services Licence No. 237504, Level 18, 20 Bond Street, Sydney NSW 2000.
The offer relating to Generator Notes issued by Generator Investments Australia Ltd (GIAL) is made in the Generator Notes Prospectus dated 25 March 2004. GIAL is a related body corporate of MEL. Investments in Macquarie Generator Notes can only be made by completing the application form that accompanies the Prospectus. This notice is not a prospectus, and does not constitute an offer of securities. GIAL has lodged a copy of the prospectus with ASIC in connection with the offer of Generator Notes. The lead manager in relation to the Generator Notes offer is MEL who will receive a fee for acting in that capacity. MEL will also receive a fee for each application for Generator Notes it processes.
Any Macquarie Bank Limited ABN 46 008 583 542 (MBL) subsidiary noted on this page is not an authorised deposit-taking institution for the purposes of the Banking Act (Cwth) 1959. That subsidiary's obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise.
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