On the 22nd of May 2017, Standard and Poor's (S&P) announced the Issuer Credit Ratings of 23 Banks (both domestic and foreign branches) operating in Australia would be downgraded due to concerns around potential economic imbalances. While there has been a lot of coverage around the potential consequences of this rating action, we believe it is important to break down the [...]
In the low-interest rate environment, domestic markets have displayed a growing appetite for high-yield bond issuance in recent years. Aside from the increased risk compensation (higher coupons), investor interests are also protected by intermediaries, namely bond trustees. A bond trustee is a company designated by the issuer as the custodian of funds and official representative of bondholders. The trustee plays [...]
Security covenants play a crucial role in investor protection and serve as a major contributor to credit analysis. While financial institutions such as banks and insurance companies are subject to regulatory requirements, a security’s covenant package is instrumental to downside protection when investing in non-financial corporate debt issuers. Covenants are legally enforceable conditions that borrowers (the issuer) and lenders (the investors) agree [...]
When investing in the ASX-Listed Debt & Hybrid market, an important consideration is liquidity. Given the market’s size of ~$60 billion, liquidity can be limited and if a major announcement occurs it may be difficult to get in or out of positions. For this reason, investors may have to accept a lower price to sell or pay a higher price [...]
2017 has been marked by both growing global geopolitical risk and uncertainty surrounding the 'overheating' domestic property market. Earlier this month, the Reserve Bank of Australia (RBA) released its Financial Stability Review (click here) focusing primarily on potential economic instability as a result of the high level of household debt. While this is not new, the review highlighted riskier types of borrowing, [...]
Over the past decade, banking regulation has evolved immensely. In response to the Global Financial Crisis (GFC), the Financial Stability Board (FSB - an international body that monitors and makes recommendations about the global financial system) fine-tuned the criteria for what constitutes a Global Systemically Important Bank (G-SIBs) to avoid the severe moral hazard (i.e. too big to fail) that [...]
In Australia the fixed income asset class receives comparatively less media attention than equities. For this reason, many investors find fixed income jargon, research and its related concepts confusing and hard to understand. However, in periods of extreme volatility relatively safe income securities can be the backstop to portfolio losses by offsetting the under-performance of other asset classes. While equities [...]
In the world of credit analysis, investors are often misled by EBITDA as it is sometimes used as a proxy for cashflow. EBITDA refers to a company's earnings before interest expense, taxation, depreciation and amortisation of certain capital expenses. While it is commonly used as a benchmark between peers, the measure does not account for capital expenditures, fails to accurately [...]
Over the past decade there have been a number of securities that feature the option to convert into ordinary equity at a pre-defined date. The conditions that trigger convertibility vary with each security but given this exposure, the price of security can be impacted by the underlying share price. The ratio of shares the investor receives for each security is [...]
Hybrids refer to a broad classification of securities issued by corporations that structurally contain both debt and equity characteristics. In terms of the capital structure, hybrids sit subordinated debt and above equity in the capital structure and tend to offer higher yields than senior bonds. These securities rank behind subordinated debt in the priority of payment while still enjoying the [...]
An employee-owned financial services provider focused on the Debt Capital Markets.
An employee-owned financial services provider focused on the Debt Capital Markets.
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ABN 31 164 148 467 ‧ Important Information
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
