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MACQUARIE INVESTMENT MANAGEMENT

Hybrid Securities: Lured by Yield

Investment Perspectives - Issue No. 6

About Macquarie Investment Management

Macquarie Investment Management offers securities investment management expertise across a range of asset classes including fixed interest, listed equities (domestic and international) and infrastructure securities. It delivers a full-service offering to both institutional and retail clients in Australia and the US, with selective offerings in other regions. Macquarie Investment Management is part of the Macquarie Group.

MIM FIC capabilities

Macquarie Investment Management Fixed Income and Currency (MIM FIC) team of Macquarie Funds Group has over $A30 billion under management across cash, credit, fixed income and currency. Macquarie began managing fixed income assets in 1980, launching Australias first cash management trust and over time has grown to manage the full spectrum of fixed income investment styles. With teams based in London, Sydney and Philadelphia we have substantial reach and capability, offering global fixed income investment solutions. We have significant and experienced resources devoted to security analysis, portfolio management, fixed income modelling, risk management and research. We are able to provide a range of fixed interest solutions from index targeting and enhanced portfolios to more opportunistic strategies across the risk spectrum. We manage investments for a diverse set of clients including pension funds, insurance companies, government bodies, managed account platforms, corporate treasuries, master trusts and individuals.

Executive Summary
Hybrid securities are complex capital instruments issued by companies to diversify their funding base and manage their cost of capital. These securities possess characteristics of both debt and equity, and incorporate various features that may make them more debt-like or more equity-like. This in turn impacts the performance of the income and capital return components of the securities. Hybrid securities have been promoted as investments that offer stable and defensive income streams. However, unlike senior debt securities, the income on hybrids can be deferrable and hybrid instruments rank below senior debt securities in the capital structure which makes them riskier investments. During the recent downturn, the income yield provided by hybrid securities failed to offset the substantial decline in capital values, highlighting the downside correlation of hybrid securities to equities during difficult times. This correlation demonstrates that hybrid securities are not a substitute for fixed income as the income flows are less certain whilst the principal value has been shown to be volatile, akin to holding equity. Our analysis shows that hybrids perform like debt when equity markets perform well, and perform like equity when equity markets perform poorly. In this paper we explore some of the key features associated with hybrid instruments and identify risks associated with investing in these securities. We compare the recent returns of hybrid securities against other instruments along the capital structure, and look at the correlation between these asset classes. We also outline our investment process which involves considering credit risk at the issuer level as well as analysing the features of a hybrid instrument against safer senior debt and subordinated debt investments, to assess their value-add to a fixed income portfolio.

Hybrids overview - what are hybrids?

Hybrid securities are instruments that feature characteristics of both debt and equity capital, and are generally complex and highly structured instruments. Hybrid security is the broad term used to describe an instrument that typically ranks behind senior debt but ahead of equity, however they can incorporate numerous features that may make them more debt like or more equity like. The characteristics of each hybrid security are important, as they determine the extent to which the instrument will behave like debt or equity. Table 1 outlines the key characteristics of securities along the debt-to-equity spectrum. Table 1 - Summary of key terms of instruments along the debt-hybrid-equity spectrum

Debt
Senior Debt Unsubordinated Regular coupons Fixed maturity Lower Tier II Subordinated Regular coupons Fixed maturity

Hybrid
Upper Tier II Deeply subordinated Deferrable but cumulative coupons Fixed maturity or perpetual Hybrid Tier I Deeply subordinated Deferrable and non cumulative coupons Perpetual

Equity
Shares Residual claim Dividends Perpetual

Hybrid market
Banks and insurance companies have traditionally been issuers of hybrid capital, as it helps to balance the conflicting objectives of regulators that want strongly capitalised financial institutions, and shareholders that are pressuring for improved returns. Hybrid securities saw increasingly robust demand during 2005-2007 as income investors, faced with record low credit spreads, disregarded the downside potential of investing in riskier securities in the chase for yield. In addition to the strong investor demand for hybrid securities, issuers were encouraged to structure hybrid securities to achieve:
Tax deductibility having tax authorities treat the

Accordingly, non-financial corporates increasingly began to issue hybrids alongside banks and insurers. Hybrids also increased in complexity as issuers sought to achieve tax efficiency, which saw a number of stapled securities issued into the Australian market, whereby the hybrid comprised a preference share and an unsecured note in order to achieve tax deductibility. Although there is no hybrid market index in Australia, we have identified 42 listed hybrid instruments with a market value of approximately $19.8b. The majority of these hybrid instruments by value are rated A by S&P (Diagram 1), reflecting the large percentage of issuance by Australian banks. A further 30% of instruments are unrated. When compared against the credit quality of the UBS Composite Credit Index, of which only 15% is rated below AA, it is evident that investing in hybrid instruments exposes investors to higher credit risk. Furthermore, based on the issuers business and financial profiles, we estimate that 13% of the hybrid universe has a sub-investment grade credit rating profile whilst the UBS Composite Credit Index does not have any sub-investment grade debt issuers.

instrument as debt-like allows the payments to be tax deductible at their marginal tax rate, which reduces overall funding costs
Rating agency equity credit having the rating agencies

treat the instruments as equity-like is supportive of the issuers credit ratings and allows them to reduce the need to raise equity
Non dilution issuing hybrid securities that are non-

dilutive is positive for earnings per share, and equity prices

Diagram 1: Rating comparison between Hybrid Universe (LHS) and UBS Composite Credit Index (RHS)
BBB 3%

Unrated 30% A 51%

A 12%

B 1% BB 2% BBB 16%

AA 24% AAA 61%

Source: Macquarie investment Management, UBS

Over one quarter of issuers in the hybrid universe are corporates (Diagram 2), compared to only 9% of the UBS Composite Credit Index. The lower risk of the UBS Composite Credit Index is further demonstrated with 55% of the index comprised of supranational entities, which are highly rated and largely risk free issuers. Diagram 2: Issuer comparison between Hybrid Universe (LHS) and UBS Composite Credit Index (RHS)
Corporates 9% Corporates 26% Banks & Financials 36% Supras 55%

Banks & Financials 74%

Source: Macquarie Investment Management, UBS

Looking specifically at the corporate segment of the hybrid universe (Diagram 3), there are 20 issues totalling $5.2b in the market, with 32% issued by large scale borrowers such as Woolworths and Sydney Airport seeking further investor diversification. 41% are issued by companies that have a sizeable private shareholder, which can constrain the issuers financial flexibility due to the potential inability to raise new equity as the private shareholder will face dilution if they cannot raise funds to subscribe to new shares. Of the remainder 27% of corporate hybrid issuers, more than half have, or would likely have, a sub-investment grade rating profile, which suggests that their access to other forms of debt capital are limited. It is also worth noting that two of Australias high profile corporate defaults had issued hybrid securities ABC Learning and Babcock & Brown. Diagram 3: Corporate issuers of the Hybrid Universe and other issuers based on credit quality

Large scale borrowers seeking diversification 32%

Other 27%

Investment grade 45%

Subinvestment grade 55% Sizeable private ownership, limited desire for dilution 41%
Source: Macquarie Investment Management, UBS

Hybrid performance
Hybrids have often been sold to investors on the basis of providing a higher yield and stable income flow. Although this is generally true, it fails to consider the other component of an investments total return the capital return. Comparing the total return performance for equity, hybrids, subordinated debt and senior debt issued by the Big 4 Australian banks along with Macquarie and Suncorp, hybrid securities perform like debt when risk assets (i.e. equities) perform well, with their higher coupon rates providing income returns that modestly outperformed senior and subordinated debt, whilst maintaining a relatively stable capital value. In the recent downturn which affected all risk-based assets, capital values of hybrid securities fell on a sustained basis to a similar degree to equities whilst the performance of both senior and subordinated debt only suffered relatively negligible declines which were offset by the income yield. Using National Australia Bank as an example (Diagram 4), the performance of its equity, hybrid capital1, senior debt and subordinated debt, over the past three and a half years can be broken into two distinct periods:
In the 26 months from December 2005 to February

wider than the original margins on some of the hybrids. This serves as a constraint on a hybrid securitys price appreciation because if an investor has the choice between two instruments paying a similar yield, but one is senior and the other a deeply subordinated hybrid, the senior debt will price closer to or at a premium to par whilst the hybrid security will price at a discount to par. Diagram 4: Performance of NAB equity, hybrid capital, senior debt and subordinated debt
160 150 140 130 120 110 100 90 80 70 60 Hybrid performance comparable to debt Hybrid performance comparable to equity

2008, the hybrids performance was comparable to debt. Throughout most of this period, total returns were driven by income returns, which saw the higher yielding hybrid instrument modestly outperform subordinated debt, which in turn outperformed lower yielding senior debt.
In the subsequent 27 months to May 2010, the hybrid

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Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 Hybrid Equity Senior Debt Sub Debt

Source: Bloomberg, Markit, Company filings

performed similar to equity, with its total return driven by significant losses in its capital value. Although the subsequent rebound in capital values has driven the performance of the hybrid, it is yet to catch up to the performance returns of senior and subordinated debt. Furthermore, it is important to remember that whilst equity theoretically has unlimited upside, hybrid upside is likely to be capped as its capital value approaches 100 cents in the dollar unless there is an equity conversion feature or its yield is significantly higher than the base rate. We note that over the past two years, some of the banks have issued senior debt at levels

1 National Income Securities originally issued in 1999 paying a margin 125 basis points over the Bank Bill Swap Rate with a perpetual maturity

We also constructed an index2 in order to assess the relative performance of equity, hybrid capital, senior debt and subordinated debt over the past four and a half years for the 6 largest banks in Australia. Looking at our index (Diagram 5), similar observations can be drawn to that of NAB. Despite the rally in hybrid capital values since early 2009, hybrid capital has underperformed senior debt by 18% since December 2005 (Diagram 6). Diagram 5: Index performance of equity, hybrid capital, senior debt and subordinated debt
150 140 130 120 110 100 90 80 70 60 50 Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 Hybrid Equity Senior Debt Sub Debt Hybrid performance comparable to debt Hybrid performance comparable to equity

It is important to note that the hybrids that we have analysed were issued by highly rated banks which have maintained stable earnings performance throughout the global economic downturn. These banks are also backed by very strong capital positions which are closely monitored by the local prudential regulator. Hybrid instruments tied to issuers with weaker credit profiles would have further doubts raised over their ability to maintain coupon payments, whilst their capital values would be affected by low recovery rates in the event of default.

Correlation analysis
The up-market period previously identified from December 2005 to February 2008 shows a strong correlation between hybrid capital, and senior and subordinated debt. Hybrid capital also had a strong correlation against equities, although to a lesser extent. The subsequent period from February 2008 to May 2010 shows that the correlation between hybrid capital and equities remained strong at 81.9%, whilst the correlation against senior debt and subordinate debt declined substantially to 19.1% and 28.6% respectively. This correlation demonstrates that hybrid securities should not be substituted for fixed income as the income flows are less certain whilst the capital value is very volatile. Interestingly, from December 2005 to May 2010, senior debt and subordinated debt were negatively correlated with both hybrid securities and equity. Diagram 7 and Table 2 illustrate the correlation analysis. Diagram 7: Correlation analysis of hybrid capital index against other instruments, broken down across two distinct periods
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

Source: Bloomberg, Markit, Company filings

Diagram 6: Out-performance of hybrid capital compared with senior debt

5% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% 50% Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 Hybrid performance comparable to debt Hybrid performance comparable to equity

0% Equity Senior Debt Subordinated Debt From Dec-2005 to Feb-2008 From Feb-2008 to May-2010

Source: Bloomberg, Markit, Company filings 2 Refer to the appendix for notes on index construction

Source: Macquarie Investment Management

Table 2: Correlation analysis

From Dec-2005 to Feb-2008

Hybrid Hybrid Senior Sub Equity 100.0% Senior 98.4% 100.0% Sub 98.8% 99.7% 100.0% Equity 83.8% 77.3% 80.8% 100.0% Hybrid Senior Sub Equity

From Feb-2008 to May-2010

Hybrid 100.0% Senior 19.1% 100.0% Sub 28.6% 99.3% 100.0% Equity 81.9% 60.8% 68.1% 100.0%

From Dec-2005 to May-2010

Hybrid Hybrid Senior Sub Equity
Source: Macquarie Investment Management

Senior -23.0% 100.0%

Sub -16.1% 99.4% 100.0%

Equity 85.8% -15.8% -7.2% 100.0%

100.0%

Our philosophy
Underpinning our approach to investing in hybrid instruments is our core investment philosophy for credit investing, whereby we focus on credit loss avoidance rather than chasing yield. Our philosophy is to detect and avoid deteriorating credits through robust and continuous credit analysis. We aim to avoid losers, not chase winners, because the downside risk from holding a deteriorating credit overwhelmingly outweighs the small benefit from holding an improving one. Analysis of the underlying credit risk of each hybrid forms the basis of our investment philosophy. Put simply, if we dont believe that the issuer is creditworthy, we wont invest anywhere along its capital structure. Assuming the issuer is creditworthy, we only invest in hybrid instruments if we believe that we are being fully compensated for taking higher risks. We also undertake relative value analysis whereby the risk-reward framework of a hybrid security is compared against senior and subordinated debt securities. These measures must be favourable for hybrid instruments before we would look to invest in them.

Hybrids as part of a portfolio

From a broad portfolio perspective, hybrid securities are not a substitute for fixed income as the income streams are less assured whilst the value of the principal balance has been shown to be volatile, akin to holding equity. For a hybrid instrument that features a greater proportion of equity-like features, investors are exposed to higher risks in the form of interest payments (coupons could be deferred, and possibly not accumulate) and principal repayment (the principal repayment date could be deferred, or in the event of a default, repayment of principal is subject to there being any residual value after other higher ranking creditors have been fully repaid). This is exacerbated if held alongside a predominantly equity-weighted portfolio given the positive correlation between equities and hybrids during periods of weak equity markets.

Appendix
Introduction to capital structure
Organisations can fund their assets and operations through two main funding sources: debt or equity (Diagram 8). Debt finance is cheaper, as investors require lower rates of return due to the lower risks of investing in debt compared with equity. Debt is also tax deductible. A company that finances its operations with as much debt as possible can in theory maximise returns to shareholders. However, debt introduces financial risks to the organisation, and too much debt can result in bankruptcy. Therefore, organisations need to balance their desire to maximise shareholder returns whilst minimising the negative implications of having too much debt. Hybrid capital, in theory can help achieve these conflicting objectives by minimising dilution (by not issuing shares), strengthening the balance sheet (by structuring an instrument that the rating agencies view as equity-like) and lowering the cost of funding (through tax deductible coupon payments). Although the theory shows that hybrid instruments work for issuers, recent performance suggests that they do not work for fixed income investors. Diagram 8: Comparison of capital structure with and without hybrid capital

Index methodology
In order to compare the performance across equity, hybrid instruments, subordinated debt and senior debt, we constructed equally weighted indices that comprised instruments issued by highly rated borrowers with comparable credit profiles. These four indices were calculated to ensure that coupon or dividend payments do not generate a discontinuity in the time series of index values, with coupons and dividends reinvested in the universe of securities comprising the indices. In our coverage universe, indices were rebalanced when a new hybrid was issued. The index divisor (n, as shown in Table 3) is increased by the number of new issues. If an issuer had a hybrid instrument in the hybrid index, then the respective instrument was included in the equity, subordinated debt and senior debt indices. For example, CBA issued a hybrid instrument in April 2006. CBA was excluded from all indices until this date. Table 3: Hybrid Index valuation formula In the absence of any new issue and maturities, the hybrid index at any time may be written as:

Index = return ( t ) * Index ( t 1 )

Equity Equity Fixed Assets Hybrid

return ( t ) =

n i = 1 ( P i , t 1 + C i , t 1 )

( P i ,t + C i,t )

Where
Debt Inventory Debtors Assets Creditors (working capital) Liabilities / Equity Creditors (working capital) Liabilities / Equity (with hybrid capital) Debt

Pi,t Ci,t

is the gross price per $100 of face value for the ith hybrid security at time t. is the sum of all the coupons payment after issuance per $100 face value plus reinvestment gain (loss) of these coupons of the ith hybrid security until the date t. is the number of hybrid securities in the index portfolio at time t.

All hybrid securities will be consistently valued CUM for the purpose of valuation

Our senior and subordinate debt indices were constructed using 5 year CDS spreads, which are highly reflective of medium term credit risks and highly liquid when compared to holding physical securities (Table 4). Coupon rates were based on the 5 year CDS spread on the date of inclusion in the index plus the quarterly benchmark rate (3 month BBSW). The gross price was calculated daily based upon actual market movements in CDS spreads and BBSW. Table 4: Senior/Subordinated Debt Replication Formula

The hybrid instruments used for our index construction: Table 5: Hybrid instruments used in our index S&P Rating A+ Issuance Coupon Date Spread 30 Sep 2008 7 Apr 2006 25 Nov 1999 2.50%

Issuer ANZ

Instrument Convertible Preference Shares (ANZPB) PERLS III (PCAPA) Macquarie Income Securities (MBLHB) National Income Securities (NABHA) Floating Rate Capital Notes (SUNHB) Trust Preferred Securities (WCTPA)

CBA MQG

A+ BBB+

1.05% 1.70%

Senior Debt Index = return ( t ) * Index ( t 1) return ( t ) = 1 n

n i =1 ( P i , t 1 + C i , t 1 ) IM TM k 365
WBC NAB

( P i, t + C i, t )

8 Jul 1999

1.25%

( B + IM ) D / 365 + Pi ,t = 1+
Where B IM D TM K R F

A n + 1 100
SUN

( R + TM ) F

A-

17 Dec 1998 21 Jun 2006

0.75%

3 months BBSW at coupon payment date. Interest Margin (CDS spread at issuance as a percentage). the number of days in the current interest period. Trading Margin (CDS spread at time t as a percentage). coupon frequency. 3 months BBSW at time t. the number of days from the beginning of the current accrual period to the next interest payment date. = (1 V) / i = 1 / (1+i) = (BBSW + TM)/ K

A+

1.00%

An V i

All instruments will be consistently valued CUM for the purpose of valuation.

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Table 6 provides an overview of some of the common characteristics observed in hybrid instruments and their ranking on a debt-to-equity scale. Table 6: Comparison of characteristics between hybrid instruments with debt and equity

Debt

Hybrid
Deferability of interest payments

Equity

Non deferrable interest

Optional or contractually deferrable

Cumulative interest payments

Cumulative interest payments Non cumulative dividend payments

Maturity Date
Fixed maturity date No maturity date perpetual

Convertability
No conversion Mandatory or optional conversion

Subordination
Unsubordinated and issued by or guaranteed by operating companies Deeply subordinated, both legally and structurally (issued by company further away from operating cashflows)

Investor Put / Investor Call Neither a debt or equity like feature, however the pricing of the security can differ materially depending on whether the instrument is priced to the option date or its legal maturity date

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Glossary
BBSW Bank Bill Reference Rate. Typically used as the risk free base rate in the pricing of many securities, including debt and hybrid instruments Capital return The portion of an investment return derived from changes in the capital value of the investment. This can be positive or negative, and may not be realised until the asset is sold. Credit Default Swap (CDS) A bilateral agreement designed to transfer credit risk between two parties. Put simply, it may be likened to an insurance contract where in exchange for a premium, the protection buyer transfers the risk of default to the protection seller. CDSs are commonly used by a wide range of financial institutions as a means of hedging and diversifying credit risks. For example, selling $1m of protection on BHP Billiton at 0.50% presents the same risk/ rewards as buying a $1m BHP Billiton floating rate note that pays a margin of 0.50% of the same maturity Convertibility Hybrid instruments may be convertible into shares of the issuer. Conversion may be mandatory, ie there is no option of getting repaid in cash, and may depend on certain triggers being satisfied. Cumulative interest payments If deferred, certain instruments may carry the requirement for the issuer to pay interest that has been deferred at a later date i.e. interest payments are cumulative. Deferability of interest In a similar manner that a company decides if it wishes to pay a dividend to equity holders, some hybrids give companies the ability to defer paying interest on securities. The interest on senior debt securities, on the other hand, cannot be deferred without triggering an event of default.

Income return The portion of an investment return derived from coupons or dividends. This will be greater than or equal to zero. Investor put This is not a very common feature of hybrids but certain instruments carry the option for the investor to sell the hybrid instrument back to the issuer at a predetermined price and date. This feature is not debt-like, nor equity-like. Issuer call This feature is similar to an investor put but in an issuer call the issuer has the option to buy back the instrument from the investor at a predetermined price and date. Maturity date Generally the maturity on hybrids can range from short dated (up to 3 years) to perpetual maturities similar to that on equities. Stapled security An instrument that comprises two or more underlying securities, neither of which can be traded separately. Some hybrid instruments comprise a preference share and an unsecured note, which aids in their coupons being deductible for tax purposes. Subordination Hybrid instruments rank behind senior debt and other creditors of the issuer but are senior to ordinary shares of the issuer. Subordination can include both legal and structural subordination, with some hybrid instruments subject to both. Tier 1 Capital Comprises the highest quality capital of a bank or insurers balance sheet. Tier 1 Capital provides a permanent capital base, is freely available to absorb losses and ranks behind senior creditors in a liquidation scenario. It typically comprises shareholders equity, reserves and retained earnings.

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About the Authors

Adrian David is a Senior Credit Analyst within Macquarie's FICCAM team in Sydney. He undertakes fundamental credit analysis on domestic and international companies operating across a range of financial, industrial and infrastructure sectors. Adrian identifies and quantifies potential issues that could impact the credit quality of individual companies and maintains an active investment view on all issuers across his portfolio of credits. across the rating spectrum on their credit rating and funding requirements and executed transactions across Europe, the Middle East, Asia and the Americas. Prior to HSBC, Adrian spent 4 years with Standard & Poor's in Melbourne and London as a corporate credit analyst. Adrian is a CFA Charterholder and holds a Bachelor of Business in Economics and Finance with distinction from the Royal Melbourne Institute of Technology University

ADRIAN DAVID
B.BUS, CFA Senior credit analyst Macquarie Investment Management

Prior to joining Macquarie, Adrian spent 3 years with HSBC's Rating & Capital Advisory team in London. In this role, Adrian advised corporate debt issuers

Asmita Kulkarni is a credit analyst within Macquaries FICCAM team in Sydney. Asmitas credit research is focused on analysis of Australian and European financial institutions and securitised transactions including RMBS, CMBS and ABS investments. Asmita actively monitors all transactions in her portfolio with a specific focus on identifying and avoiding deteriorating credits.

played an integral role in developing our PCA Model and the Safety Factor Model which is used in our analysis of mortgagebacked securities. Asmita joined Macquarie as a graduate of the University of NSW, where she completed a BComm with Distinction, majoring in Finance and Actuarial studies. Asmita is a CFA Charterholder and an Associate of the Institute of Acturies Australia.

ASMITA KULKARNI
B.COM, AIAA, CFA Credit Analyst Macquarie Investment Management

Prior to joining the Credit team Asmita worked in the FICCAM Quantitative Research team where she was involved in analysis of new investment ideas and the development of analytical tools. Asmita

The authors would like to extend a special thanks to Gary Ding for his research assistance with this publication.

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Important Notice This document has been prepared in August 2010 by Macquarie Investment Management Limited (ABN 66 002 867 003, AFSL 237492) (MIML) solely for general informational purposes. The information in this document is not, and should not be construed as, an advertisement, offer or recommendation to participate in any investment strategy or take any other action. This document has been prepared without taking into account any persons objectives, financial situation or needs. Readers should not construe the contents of this document as investment or other advice. Future results are impossible to predict. This document contains conclusions, opinions, estimates and other forward-looking statements which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward looking statements. Forward-looking statements are subject to change without notice. No representation or warranty, express or implied, is made as to the suitability, accuracy or completeness of the information, opinions and conclusions contained in this document. In preparing this document, reliance has been placed, without independent verification, on the accuracy and completeness of all information available from external sources. To the maximum extent permitted by law, no member of the Macquarie Group nor its directors, employees or agents accept any liability for any loss arising from the use of this document, its contents or otherwise arising in connection with it. MIML is not an authorised deposit-taking institution for the purposes of the Banking Act (Commonwealth of Australia) 1959, and MIML's obligations do not represent deposits or other liabilities of Macquarie Bank Limited. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIML.

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