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Heartland plans bond issue

Heartland, the combined Marac Finance, CBS Canterbury, and Southern Cross Building Society, is considering launching a bond issue as part of its funding strategy.

The company signaled the bond issue today while updating the market on its liquidity position and purchase of PGG Wrightson’s finance arm.

Heartland said if its proposed acquisition of PGW Finance goes ahead it will take on $92 million worth of retail bonds that mature in October this year.

The company said it has sufficient cash on hand to repay the maturing PWF bonds in full but will look at a bond issue of its own.

“Given current demand for corporate bonds and the desire to retain the PWF deposit base, the board is considering a bond issue in the near future as part of a broader wholesale funding strategy, the company announced to the NZX today.

Heartland says it has mandated Westpac and Bank of New Zealand regarding a potential retail bond issue “as a possible refinancing option.”

The PGG Wrightson Finance deal requires various shareholder, deposit holder and regulatory approvals.

Meetings of PWF depositors and bondholders were held today to vote on the proposed transfer of their investments in PWF to Heartland.

However, as expected quorums were not reached, and the meetings were adjourned until 15 August.

Meanwhile, Heartland said its liquidity is due to increase to approximately $650 million as a result of a planned expansion of its securitisation programmes by a further $100 million, in contemplation of the proposed acquisition of PWF.

The company, which is seeking a full banking license, says because it is 100% locally funded it is not experiencing the volatility occurring in offshore capital markets.
 

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Comments and questions
2

Won't they be classified as Junk Bonds - non bank and no history.

Heartland will have to pay a huge premium to the investors and to the underwriters which will make it difficult for them to achieve the profit forecasts they are forecasting for this year.

Trying to price the risk for an NBDT in the current environment will be a huge challenge.

Investors are likely to require a significant premium to get involved with the business at this formative stage, especially given the recent historical loss experience from the Marac book.