Latitude’s Discretionary Distribution Highlights Hybrid Capital Risks for Investors

Latitude Group’s Latest Distribution Announcement

Latitude Group Holdings Limited (ASX: LFS) has confirmed a distribution payment of AUD 2.2291 per Capital Note (LFSPA) for the quarter ending 27 April 2025. The distribution will be paid on 28 April 2025, with the ex-date and record date set for 16 and 17 April respectively. This announcement maintains Latitude’s commitment to providing a steady income stream to holders of its Capital Notes.

Distribution Mechanics and Terms

The distribution is calculated based on the 3-month Bank Bill Swap Rate (BBSW) plus a margin of 4.75%, resulting in an annualised rate of approximately 9.04%. This reflects the hybrid nature of the Capital Notes, which are perpetual, non-cumulative, and redeemable in 2026. The payment is unfranked, meaning it does not carry franking credits, and is classified as conduit foreign income for tax purposes.

Importantly, Latitude retains absolute discretion over the payment of distributions, a standard feature for such hybrid securities. No external approvals, such as court or regulatory consents, are required for this distribution, underscoring the company’s operational autonomy in managing its capital instruments.

Investor Implications and Market Context

For investors, this distribution announcement signals Latitude’s ongoing ability to service its hybrid capital obligations amid a dynamic interest rate environment. The margin over BBSW provides a buffer against fluctuations in short-term interest rates, which have been volatile in recent quarters. The unfranked nature of the distribution may influence the after-tax returns for certain investors, particularly those sensitive to dividend imputation credits.

Latitude’s Capital Notes, issued under the prospectus dated 10 September 2021, continue to offer an attractive yield profile relative to traditional fixed income, albeit with the inherent risks of discretionary payments and perpetual tenure. Market participants will be watching closely for any shifts in Latitude’s discretion policy or changes in the broader interest rate landscape that could impact future distributions.

Looking Ahead

As the payment date approaches, investors should review the detailed terms outlined in the original prospectus and consider the implications of the distribution’s discretionary nature. Latitude’s financial health and strategic priorities will remain key factors influencing future distribution decisions and the overall attractiveness of its Capital Notes.