New Issue: Bendigo and Adelaide Bank Capital Notes 2 (ASX: BENPI)

On 26 February 2024, Bendigo and Adelaide Bank Limited (ASX: BEN) launched an offer for Bendigo and Adelaide Bank Capital Notes 2 (CN2; Expected ASX Code: BENPI), to raise $250 million, with the ability to raise more or less. The purpose of the Offer is to raise Additional Tier 1 (AT1) regulatory capital for BEN, with proceeds to fund: the redemption of participating Bendigo Converting Preference Shares 4 (CPS4; ASX: BENPG) and non-participating BENPG on the 13 June 2024 optional exchange date, subject to APRA approval; and general corporate purposes.

CN2 is structured as fully paid, non-cumulative, convertible, perpetual, subordinated, unsecured notes. Distributions are discretionary, non-cumulative, floating rate and expected to be fully franked, payable on a quarterly basis in arrears. The margin is guided at 3.20-3.40% p.a. above 90-day BBSW. There is no obligation on BENPI Holders to pay BEN if the distribution rate was to become negative.

This security has no fixed maturity date but is scheduled for mandatory conversion into BEN Ordinary Shares on 13 September 2033, or later, if conversion conditions have been satisfied. At the Issuer’s discretion, and subject to approval by APRA, BEN can redeem or resell CN2 for cash at face value or convert CN2 into BEN Ordinary Shares on 13 December 2030, 13 March 2031, 13 June 2031, or 13 September 2031. Subject to APRA approval, CN2 may also be redeemed, resold, or converted into BEN Ordinary Shares if a Franking, Tax or Regulatory Event occurs. CN2 will convert into BEN Ordinary Shares following a Change of Control Event, subject to conversion conditions.

We recommend that investors Subscribe to BENPI. At the left-hand side of guidance, we view there to be a small concession to fair value. We have evaluated fair value using a number of methods, and our ultimate fair value range is in the area of 315-320bps. This does not account for supply/demand dynamics in the market, which are leaning favourably to BEN, thereby making any concession offered more generous for investors than otherwise seen in the market recently.