Dominion income Trust
Hello team, With Bank hybrids disappearing from retail investors domain is Dominion Income Trust paying BBSW+4% worth the risk? John
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Hello team, With Bank hybrids disappearing from retail investors domain is Dominion Income Trust paying BBSW+4% worth the risk? John
Hi John,
It looks a good security, from a good manager, targeting a realistic return, charging a reasonable fee (0.5% incl GST).
Here’s what we wrote on Wednesday about it;
New Issue – The Dominion Income Trust (DN1)
The first of no doubt many new issues launched this week, as managers look to fill the void left from the abolition of bank hybrids from the retail market progressively between now and 2032. Realm, a locally based Credit and Fixed Income manager with ~$7.4bn under management, have created a structure to look and feel as much like a hybrid as possible, including;
While it looks and feels like a hybrid, there are several points worth highlighting.
The Trust structure proposed by Dominion (which is owned by Realm) is an innovative one, whereby they raise up to $300m (they already have the min $150m done) and invest it in a credit note that pays 1m BBSW + a 4.00% margin. The note invests in an underlying portfolio at a 4% margin, they charge a 50bps fee and pass through the 3.5% targeted margin net of fees to the LIT.
With the 1-month BBSW at 4.3% + the margin at 3.5%, the initial yield would be 7.8% net. Assuming market pricing is correct, and we get 0.8% of interest rate cuts before Christmas, the yield is more like 7%. Realm are also funding an equity buffer of $10m which is designed to absorb any credit losses. The structure is set out below.
The Broker offer is now live, with a closing date of the Broker Firm being 11 February 2025, however, it is subject to early close, which we think is likely. Allocations can be bid for through the following brokers for sophisticated and professional investors. Morgans, E&P, Commsec, Canaccord, Shaw and Partners & Wilsons. The presentation is available here and research from Bond Adviser is here, keeping in mind this is paid research, not independent of the issuer. Also important to read the Product Disclosure Statement (PDS) here.
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