Old-style convertible note WCTPA set to be called on 30 June

Assuming it’s called – this is the end for another of the old-style Tier II hybrid, which had more debt-like features compared with the more equity-like new-style Tier II, and Tier I hybrids.

Westpac is issuing a rollover option for this circa $763m issue, being a new-style Tier I, with the downside being the ‘non-viability’ clauses and subsequent ‘bail-in’ features.  This does not represent a like-for-like rollover given the much higher capital volatility associated with the new-style of hybrids.

As the chart below shows, WCTPA experienced considerable price volatility, and for advisers and investors who are thinking about more capital-stable rollover options, we outline the merits of YTMF03, which is the XTB over the Bank of Queensland 2018 senior floating rate note.

WCTPA and YTMF03 both have a coupon rate of BBSW+1.00% and they’re both trading on ASX around $100 (as the hybrid is about to be called).  The chart below shows the price performance of both securities since they were issued, showcasing the capital stability of senior corporate debt vs Tier II hybrids.

Floating Rate XTBs as a roll-over option

For those looking to give the price volatility roller-coaster a miss, Floating Rate XTBs are worth considering as a roll-over option on a floating-for-floating basis.

Some fixed-rate XTBs will provide even greater yield on a floating-for-fixed basis, if your view is with the ‘lower-for-longer’ camp on rates over the next  few years.

WCTPA versus YTMF03

Issuer Westpac Bank of Queensland
Seniority Old-style Tier II Senior Unsecured
Coupon Type and Rate Floating
(3M BBSW + 1.00%)
(3M BBSW + 1.00%)
Call Date / Maturity 30 JUN 2016 12 JUN 2018
Source: Australian Corporate Bond Company and Bloomberg, Data as at 10 May 2016

Price Performance Chart

Westpac rollover options

Source: Australian Corporate Bond Company and Bloomberg, Data as at 19 May 2016

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