Latitude Group Holdings Limited has launched an offer to raise approximately $100 million through Capital Notes 2, a new series of perpetual, subordinated, unsecured convertible notes. Existing Capital Notes 1 holders are invited to reinvest in the new notes, which feature discretionary quarterly distributions and potential conversion to ordinary shares.
- Offer aims to raise $100 million via Capital Notes 2
- Includes reinvestment option for Capital Notes 1 holders
- Capital Notes 2 are perpetual, unsecured, subordinated notes
- Distributions are discretionary, floating rate, and expected to be franked
- Conversion or redemption at company’s option with margin step-ups
Capital Notes 2 Offer Overview
Latitude Group Holdings Limited has announced a capital raising initiative through the issuance of Capital Notes 2, targeting approximately $100 million. These notes are perpetual, subordinated, unsecured convertible securities designed to provide investors with a floating rate income stream, subject to the company’s discretion. The offer notably includes a reinvestment option for existing Capital Notes 1 holders, allowing them to exchange their current notes for the new series.
Key Features and Terms
Each Capital Note 2 carries a face value of $100 and will pay quarterly distributions calculated as the sum of the three-month Bank Bill Rate plus a margin, adjusted for franking credits. The margin is to be determined via a bookbuild process and is expected to fall between 4.15% and 4.35% per annum. If the notes are not redeemed or converted by the optional exchange date in April 2031, the margin will increase by 3%, with an additional 5% step-up if a change of control event occurs and the notes remain outstanding.
Capital Notes 2 do not have a fixed maturity date, meaning investors may hold them indefinitely unless the company elects to redeem or convert them into Latitude Ordinary Shares. Conversion is at the company’s discretion and will be based on a volume weighted average price of the shares, less a 2.5% discount.
Investor Eligibility and Distribution Obligations
The offer is structured to comply with Australia’s Design and Distribution Obligations (DDO) regime, ensuring that Capital Notes 2 are targeted at suitable retail investors. Applications must be made through syndicate brokers, and retail investors must receive personal advice confirming their suitability. The notes will be listed on the ASX under the code "LFSPB", enabling secondary market trading post-issuance.
Use of Proceeds and Capital Structure Impact
Proceeds from the offer will be used for general corporate purposes, including potentially redeeming outstanding Capital Notes 1. The reinvestment offer is expected to reduce the number of Capital Notes 1 on issue, which may affect their liquidity. The capital raising will increase Latitude’s equity base and improve its tangible equity to net receivables ratio, enhancing financial flexibility.
Risks and Considerations
Investors should be aware that Capital Notes 2 carry risks distinct from ordinary shares, including the discretionary nature of distributions, potential illiquidity, and the subordinated status in a winding-up scenario. Market price volatility and the possibility of conversion into ordinary shares at an uncertain time and price add complexity. Latitude’s regulatory compliance, cyber security, and operational risks also bear on the investment’s risk profile.
Latitude continues to focus on responsible lending, cyber security enhancements, and regulatory engagement to mitigate operational risks. However, investors should carefully consider their investment objectives and seek professional advice before participating.
Bottom Line?
As Latitude embarks on this capital notes issuance, investors will watch closely how the market receives these hybrid securities and how the company manages its evolving capital structure.
Questions in the middle?
- What margin will be set in the upcoming bookbuild for Capital Notes 2?
- Will Latitude choose to redeem or convert Capital Notes 2 at the optional exchange date in 2031?
- How will the reinvestment offer impact the liquidity and pricing of existing Capital Notes 1?