MA2HA

Hi Matt,

MA2HA is essentially an ASX-listed, floating-rate private credit security, with a structure designed to provide relatively predictable monthly income and some first-loss protection.

We like it, and hold it in selected Market Partners Bespoke Portfolios.

The ASX-listed security is issued by MA Financial. The notes have a $100 face value and pay 1-month BBSW + 3.25% p.a. monthly, providing exposure to a diversified portfolio of Australian and global private credit across areas such as asset-backed lending, mortgages, equipment finance and corporate lending.

One of the features we particularly like is the 5% capital buffer, with MA-related capital sitting beneath noteholders and absorbing initial portfolio losses before MA2HA investors are impacted. The notes also benefit from first-ranking security over the relevant portfolio assets. This doesn’t eliminate credit risk, but it provides an important additional layer of protection.

The underlying portfolio is highly diversified across more than 100 individual positions and hundreds of thousands of underlying loans, while the vast majority of lending is floating rate. This means MA2HA carries relatively little traditional interest-rate duration risk, although the income received will fall if BBSW declines.

The notes are callable in December 2031 and mature in December 2032. Importantly, the call isn’t guaranteed. If they’re not redeemed at the first call date, however, the margin steps up by 1% to BBSW + 4.25%, providing an incentive for MA to refinance the notes.

The key risks are underlying credit losses, liquidity and the potential for interest payments to be deferred, although deferred interest is cumulative. The 5% buffer is also finite, so MA2HA should not be viewed as equivalent to cash or a government bond.

Ultimately, we see MA2HA as an attractive middle ground between traditional fixed income and higher-risk equity income. The combination of monthly floating-rate distributions, a diversified underlying loan book, secured creditor status and the 5% first-loss buffer makes the risk/reward appealing, as does the prevailing discount to face value, with the security trading $95.84.  The current running yield is ~7.6%, however, when trading below its $100 face value as it is today, the yield to first call  sits at ~8.6%, given there is also potential capital upside if it is ultimately redeemed at par. The only caveat being, it’s floating, so any reduction in the cash rate will reduce this amount by the magnitude of any cut.