NAB bond request hints at Insignia suitors’ declining enthusiasm

NAB’s early redemption request for its Insignia bonds raised eyebrows this week, and some have taken it as a further signal bidder interest could be waning.

Insignia said it had a request by NAB to redeem $200m of subordinated loan notes that the bank offered to help fund its 2021 purchase of rival wealth business MLC.

Insignia has the right to deny the early request, which it opted to do.

But some think the request in the first place is all to do with the bank’s prediction that Insignia’s share price will fall and the bank would get less money now than in the future.

The only way this would happen is if Insignia’s three suitors were going to drop their offer prices for a buyout from $4.60 a share or walk away all together.

Recently, Insignia’s share price has been falling, showing the market is doubtful about the buyout offer price holding, and closed at $4.23 on Wednesday – or at a value of $2.8bn.

Particularly suspicious is that the company indicated it would provide an update on how due diligence of suitors Brookfield, Bain Capital and CC Capital was progressing at the end of last month, but it has been radio silence.

The subordinated loan included an equity linked component, whereby it had an additional return amount (ARA) payable if the volume-weighted average price (VWAP) of its shares during the 30 trading days before the date of the request exceeded the reference price.

At the date of the early redemption request, it was $3.55.

The maturity date is 31 May 2026.

Based on a $4.50 VWAP, the ARA payable is $53.5m on maturity.