Challenger Limited

Challenger Limited

Capital Notes 3

Morgans is a Co-Manager to the Offer(1)

Challenger Limited (CGF) (Challenger) has announced it is seeking to raise $[250] million(2) through the issue of Challenger Capital Notes 3 (CGFPC). CGFPC are fully paid, subordinated, convertible, unsecured, perpetual, redeemable, non-cumulative notes.

Challenger Capital Notes 3 may be suitable for investors looking for regular partially franked(3) income by way of floating rate distributions from a top 100 ASX-listed investment management company managing $85 billion in assets (as at 30 June 2020). Challenger, through its wholly-owned life company CLC, is also the leading provider of annuities and guaranteed retirement income solutions in Australia.

Challenger Capital Notes 3 may offer investors the opportunity to further diversify their income portfolio.

The Offer includes a Reinvestment Offer and Repurchase Invitation to all eligible Challenger Capital Note 1 (CCN1) Holders (ASX: CGFPA) who held CCN1 on the record date Thursday 8, October 2020.

Options available for eligible CCN1 (CGFPA) Holders

Option 1 - Reinvestment Offer: Reinvest CCN1 Resale Proceeds ($100 per Note) into Challenger Capital Notes 3 ($100 per Note). If Holders elect to reinvest only some (and not all) of their CCN1 under the Reinvestment Offer, they will be deemed to have tendered the balance of their CCN1 to be repurchased for cash at the face value ($100 per Note) under the Repurchase Invitation.

Option 2 – Repurchase Invitation: Eligible CCN1 Holders may choose to tender all (and not some) of their CCN1 to be repurchased for cash at the face value ($100 per Note) on 25 November 2020.

Option 3 – Take no action: CCN1 Units will remain on issue in accordance with their terms. Under the CCN1 Terms, Challenger must convert any CCN1 that are outstanding on 25 May 2022 into Challenger Ordinary Shares, provided that the Mandatory Conversion Conditions are satisfied. If you do not want this to happen to your holdings of Challenger Capital Notes 1, then you should elect either Option 1 or Option 2.

Challenger Capital Notes 3 are complex and may not be suitable for all investors as they involve different risks from a simple debt or ordinary equity securities. You should ensure that you understand the Terms and risks of investing in Challenger Capital Notes 3 and consider whether it is an appropriate investment for your particular circumstances. It is important that you read the Prospectus in full before deciding to invest in Challenger Capital Notes 3.

Key features of the Offer

  • Opportunity to reinvest CCN1 Resale Proceeds ($100 per Note) into Challenger Capital Notes 3 ($100 per Note) and maintain an exposure to Challenger
  • Opportunity to participate in the Broker Firm offer via Morgans as a Co-Manager to the Offer
  • Challenger Capital Notes 3 have a face value of $100 and are redeemable by the issuer on 25 May 2026(4)
  • If not redeemed before, Challenger Capital Notes 3 will convert into Ordinary Shares on 25 May 2028(5)
  • Quarterly (partially franked) gross distributions(6) equal to the 3 Month Bank Bill Rate plus a margin of [4.60-4.80]%(7) i.e. approximately [4.70-4.90]% p.a(8)
  • Distributions are discretionary, non-cumulative and subject to the Distribution Payment Conditions outlined in the Prospectus but must be paid ahead of Ordinary Share dividends, and if not paid, dividend and capital restrictions apply to Ordinary Shares
  • Challenger Capital Notes 3 will contain a Non-Viability Trigger condition which may impact their value in certain circumstances(9)
  • Expected to be quoted on the ASX under the code CGFPC(10)

Issuer: Challenger Limited (CGF) (Challenger)

Transaction: Capital Notes Offer

Morgans Role: Co-Manager

Offer Size: $[250] million

Offer Opening Date: 21 October 2020

Morgans closing date for Broker Firm New offer: 13 November 2020

Morgans closing date for Reinvestment Offer: 10 November 2020

Investors should note that investments in Challenger Capital Notes 3 are an investment in Challenger and may be affected by the ongoing performance, financial position and solvency of Challenger. Challenger Capital Notes 3 are not deposit liabilities and are not policy liabilities of Challenger, CLC or any other member of the Challenger Group; are not investments in any superannuation or other fund managed by a member of the Challenger Group; or guaranteed or insured by any government, government agency or compensation scheme of Australia or any other jurisdiction. The investment performance of Challenger Capital Notes 3 is not guaranteed by Challenger or any other member of the Challenger Group.

Challenger Capital Notes 3 are complex and may not be suitable for all investors. The overall complexity of Challenger Capital Notes 3 may make them difficult to understand and the risks associated with them could result in the loss of all or some of your investment and associated income. Before applying for Challenger Capital Notes 3 all investors should consider whether Challenger Capital Notes 3 are a suitable investment for them including by considering the key risks as outlined in sections 1.5 and 6 of the Prospectus. There are also a number of differences between CCN1 and Challenger Capital Notes 3 outlined in sections 1.6 and 3.2 of the Prospectus which investors should be aware of before deciding to participate in the Reinvestment Offer.

Investors should also note that no cooling-off rights (whether by law or otherwise) apply to an Application for Challenger Capital Notes 3. This means that, in most circumstances, Applicants may not withdraw their Applications once submitted.

Footnotes

  1. Morgans will receive fees for its role.
  2. Challenger may issue more or less than $[250] million of Challenger Capital Notes 3.
  3. Holders should be aware that franking is not guaranteed and the laws relating to the availability of franking may change. Distributions paid on Challenger Capital Notes 3 are initially expected to be partially franked at the same rate as Ordinary Shares.
  4. Subject to APRA approval. Challenger Capital Notes 3 are perpetual and do not have a fixed maturity date. If Challenger Capital Notes 3 are not Converted, Redeemed or Written-Off, they could remain on issue indefinitely and the Issue Price may not be repaid.
  5. Conversion is subject to conversion conditions as outlined in the Prospectus.
  6. Distributions are non-cumulative, paid at the discretion of Challenger and subject to Distribution Payment Conditions.
  7. Margin will be set via the bookbuild and may set outside this range.
  8. Based on 3 Month Bank Bill Rate of [0.10]%.
  9. A determination by APRA of non-viability of Challenger may result in Conversion or Write-Off of Challenger Capital Notes 3; full detail is contained in the Prospectus and Morgans Offer Summary.
  10. Application will be made to list Challenger Capital Notes 3 on ASX.

More information

Investors should read the Prospectus and Repurchase Booklet in full to understand the features and risks of Challenger Capital Notes 3. Please contact your Morgans adviser to apply under the Offer.

If you have any questions about the Offer, please contact your Morgans adviser, call 134 226 or find your nearest office.

Download Prospectus

Challenger Capital Notes 3 are being offered only in Australia and the Prospectus will only constitute an offer to a person receiving it in Australia. Not for distribution, directly or indirectly, in the United States or to, or for the account or benefit of, US Persons, except in accordance with an available exemption from the registration requirements of the US Securities Act. The distribution of the Replacement Prospectus (including an electronic copy) in jurisdictions outside Australia may be restricted by law.

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