2003 Media Releases

Backgrounder: Portfolio Linked FRNs

What are Portfolio Linked Floating Rate Note (FRNs)?

They are the second investment product to be issued by Nexus Bonds Limited. Portfolio Linked FRNs are linked to the creditworthiness of a portfolio of Debt Obligations of companies rated investment grade by Standard & Poor’s or Deutsche Bank. Portfolio Linked FRNs pay interest quarterly in arrears on a floating rate basis, which will be adjusted every 90 days.

Who is Nexus Bonds Limited?

Nexus was established in 2002 to provide retail investors with investment opportunities normally only available to the professional investment community. Nexus is the issuer, and Deutsche Bank the arranger of the offer, of Portfolio Linked FRNs.

Is this the first Nexus product?

No. The first Nexus product, Nexus Yield Bonds, was listed on the Australian Stock Exchange in December 2002 after closing oversubscribed. Nexus High Yield Bonds are currently trading on the ASX at around $104.

What are Portfolio Linked FRNs?

The $56 million Portfolio Linked FRNs are debt securities that pay interest at a floating rate equal to the 90 Day Bank Bill Rate plus 3.25% per annum quarterly in arrears.

Floating Portfolio Noteholders are exposed to a $1.6 billion diversified portfolio of senior (secured or unsecured) debt obligations of more than 70 international and Australian companies rated investment grade by S&P or Deutsche Bank. Portfolio Linked FRNs are rated BBB by S&P.

What are the benefits of investing in Portfolio Linked FRNs?

Through exposure to the creditworthiness of over 70 companies rated investment grade by S&P or Deutsche Bank whose debt obligations are included in the portfolio, Nexus is able to make quarterly interest payments 3.25 per cent above the 90-Day Bank Bill Rate.

Investors pay no application, management or exit fees. Portfolio Linked FRNs will be tradable on the Australian Stock Exchange.

When will Portfolio Linked FRNs mature? And what happens on maturity?

Portfolio Linked FRNs are scheduled to mature in 2009. Portfolio Linked FRNs are designed to be repaid to Noteholders on the maturity date.

Are there any guarantees that the full principal amount will be repaid?

There are no guarantees that the principal amount of $100 per Note will be repaid on maturity. Repayment of the investment amount will depend on whether the portfolio companies suffer several “company events” during the portfolio term and losses from those company events exceed the protection amount. S&P have determined that the Notes will have a credit rating of BBB on issue, which is considered to be investment grade.

Are Noteholders protected against company events, such as bankruptcy?

There is a protection amount that is available to absorb losses from the portfolio (should there be any) up to $53.6 million. Once the protection amount is fully exhausted, then Noteholder returns will be affected by company events.

Is the debt of the companies secured or unsecured?

The debt obligations are secured or unsecured and rank senior to other financial obligations of the companies, including convertible notes and shares. Portfolio Linked FRNs are classified as unsecured notes for the purposes of section 283BH of the Corporations Act 2001.

Can Portfolio Linked FRNs be redeemed at any time?

Portfolio Linked FRNs will be listed on the ASX and may be traded on that market.

What companies are in the portfolio?

Banking confidentiality and privacy conditions prevent Deutsche Bank from disclosing the actual names of the portfolio companies, but all of the companies have been assigned an investment grade rating by S&P or Deutsche Bank’s credit risk management officers.

How many Portfolio Linked FRNs are being issued?

560,000 at $100 each to raise $56 million, with the ability to accept over-subscriptions up to $42 million.

When does the offer open?

19 November, 2003

When does the offer close?

The offer is expected to close on 12 December 2003.

When will Portfolio Linked FRNs be issued?

The issue date is expected to be 16 December 2003.

When will they be listed on the ASX?

The expected listing date is 22 December 2003.

When will the first interest payment be made?

Interest is payable in arrears every quarter. The first interest payment is due three months after the issue date.

For further information contact:

Alex Gottshall 9221 4433 
Kate Abrahams 9258 2416

Offers of Portfolio Linked FRNs will be made only pursuant to the Prospectus dated 12 November 2003. Applications for Portfolio Linked FRNs can only be made on the Application Form attached to, or accompanying, the Prospectus