AHU allco hybrid investment trust

ahuga lists 07.01.04

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    700 Posts.
    AHUGA lists 07.01.04

    Allco's hybrid PoDs produce a variety of offspring Allco PoD hybrids
    What are they?
    Hybrid securities.
    What does that mean?
    Hybrids are crosses between debt assets and shares. They act like bonds at first, paying a fixed rate of return (or one that moves with a benchmark such as interest rates), but are listed and their structure can change as a result of certain events. For example, on pre-determined dates, or if particular things happen, they can convert into shares in the company that issued them.
    All hybrids are different but there are dozens of them around, from big names like the major banks.
    Why would I buy them?
    They usually offer high yields, though that comes in exchange for a bit of uncertainty you might start out owning a bond and end up with shares, not that that's a bad thing. It's just the trade-off.
    What's special about his one?
    PoD hybrids, which stands for Protected on Downside, are six-year securities that pay a fixed rate of 9 per cent, fully tax deferred, for the first 31/2 years.
    At that point, a reset date is reached and things get a bit complicated. To understand what happens next, you need to know a bit about the issuer, Allco, an investment bank. Allco has set up something called Allco Principals Trust that will invest in a range of structured finance deals and in the shares of a company called Record Investments, which is a financial institution specialising in complicated structured finance. (Record was listed by Allco.)
    The issuer of the PoD hybrids will be a company called Allco Hybrid Investment Trust and it will put $136 million to $170 million of the money it raises from the hybrids (it can actually raise as much as $250 million) in this Principals Trust vehicle.
    Over time, Principals Trust might list through an initial public offering, or become a listed managed fund.
    But back to the hybrids. On their reset date, the issuer can choose to convert the hybrids into one of three things: shares in Principals Trust, if it's listed; shares in the listed managed fund, if that's what Principals Trust has become; or shares in Record Investments. Either way the holders will get a 2.5 per cent premium.
    Or, Allco can reset the distribution rate for another 21/2 years, bringing up the six-year maturity of the deal.
    But if Principal Trust does have an IPO or becomes a managed fund, the holders have rights, too. They can insist that their hybrids are converted.
    One final thing: as a sweetener investors get 5 per cent of the profits realised by Principals Trust between the issue date of the hybrids and Principals Trust listing or becoming a listed fund.
    Is it good for me if the hybrids convert?
    It's hard to tell, as you could end up getting one of three different outcomes. If it's any guide, the share price of Record Investments has shot up in recent years and some brokers still think it's worth buying despite the soaring price. But who knows how these things will look in 31/2 years?
    Still, 9 per cent in the meantime is pretty handy.

    Allco yesterday (07/12/04) officially launched the $250 million offering of PoD (protected on the downside) hybrids at an issue price of $100 per PoD hybrid. The offering has already is already fully subscribed.

    Hybrid float boosts Allco's coffers
    David Coe's Allco empire will grow by a lazy $250 million with the float of its Protected on the Downside (PoD) Hybrids, launched yesterday. All of which makes one wonder when Allco and its peers get time to spend the money they have raised.
    The real point of interest for investors who can get their hands on the PoDs is the potential for the new hybrids to convert into shares in the Allco Principals Trust, which plans a separate float within the next six years.
    Since the trust will be the vehicle through which future Allco business will be done (the Record Investments stake is held via the trust), it will in effect be the vehicle through which Allco would come to the public markets.
    Allco is not stopping there. In the first half of next year, a shipping and then a property fund created via the Allco Hybrid Investment Trust will be floated. The Australia Post building in Melbourne will help seed the property fund.
    with Katrina Nicholas

    Allco trust listing to improve Record
    By Lisa Murray
    December 8, 2004
    David Coe's Allco Group is planning to list its new investment vehicle Principals Trust in the next three-and-a-half years, as the finance company looks to follow in the footsteps of its bigger peers Babcock & Brown and Macquarie Bank.
    Allco has already listed Record Investments, Record Realty, Hybrid Investment Trust and the Alleasing Hybrids.
    Yesterday it announced details of its new Principals Trust, which will invest up to $158 million in Record at $5.25 a share, subject to shareholder approval.
    The move would lift Allco's stake in Record to between 23 and 25 per cent and give it another wholly owned subsidiary through which it could invest in a range of structured and asset finance transactions.
    It was flagged last month and welcomed by investors, who were keen to see the interests of Allco and Record more closely aligned. Allco originates more than 90 per cent of Record's investments.
    The Principals Trust will be funded by a public offer of up to $250 million worth of "Protected On the Downside Hybrids", launched yesterday at an issue price of $100 for each security.
    The key event that would trigger a conversion of those hybrid securities was the float of Principals Trust, which could happen at any time, the company said.
    "Our objective is to take Principals Trust to market, and it is in that 31/2 year time frame that we think it might happen," said Allco director Chris West.
    Up to $170 million of the funds raised will be used to buy preference units in Principals Trust, with the remainder invested and used to pay a minimum cash distribution of 9 per cent every six months.
    Principals Trust, in turn, is using the money to fund its investment in Record shares.

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