One tranche of Mayberry Investments Limited’s $5-billion secured bond has been closed due to it being oversubscribed.

Tranche IV had an initial subscription cap of $1.25 billion like the other three tranches, except it offered a 12 per cent interest rate for 36 months. Mayberry closed the tranche to new applicants on December 23 with the upsize cap of the bond at $7 billion. While this would translate to $1.75 billion per tranche, the bond is accepted on a first come first served basis which means that Mayberry can decide the uptake for the tranche beyond the minimum $1.25 billion target.

Tranche I has a fixed interest rate of 9.25 per cent for 13 months. Tranche II has a fixed interest rate of 10.00 per cent for 18 months. Tranche III has a fixed interest rate of 11.00 per cent for 24 months. Mayberry has the right to close any tranche early if it’s fully subscribed.

The oversubscription and closure of tranche IV means that Mayberry’s public bond offering is the largest on the Jamaica Stock Exchange’s (JSE) bond market which was relaunched in October 2013. Access Financial Services Limited’s $900-million variable rate bond due October 2025 was the largest bond on the market before Mayberry’s offer.

When Proven Wealth Limited (PWL) analysed the bond, it noted that the collateral for the bond has an adequate buffer for volatility based on the loan to value of 0.42 times. It also projected that Mayberry would remain in compliance with the debt-to-equity covenant cap of four times up to 2025 where it projects it would be at 1.31 times.

After accounting for the 25 per cent withholding tax on interest, the net coupon ranged from 6.94 per cent to 9.00 per cent for tranches I to IV. However, the spread analysis revealed that after accounting for the Government of Jamaica’s (GOJ) interpolated yield, the spread would be 3.65 per cent to 6.07 per cent for tranches I to IV. This was highlighted as a risk if inflation persists above the Bank of Jamaica’s (BOJ) four to six per cent target range which would impact the real yield to investors. The BOJ has paused the hikes on its policy rate at 7.00 per cent.

“We are of the view that the various tranches of the Mayberry bonds are adequately covered by the company’s balance sheet. The credit is further enhanced given that it is secured by collateral. However, from an EBITDA perspective we believe that the investment risk is greater due to its strong correlation with fair value gains of a handful of Jamaica Stock Exchange [JSE] listed stocks. We also believe that the coupons net of taxation may not adequately provide an inflation premium considering the compensation needed to address the potential volatility of MIL’s EBITDA. On this basis, we recommend investors to only participate in the offer for diversification purposes,” said the PWL report.

While the PWL report noted that tranche II was a minimum of 50 basis points lower than comparable offers with a more diverse revenue mix, it highlighted that the offer being publicly listed would carry a lower liquidity premium compared to the other bonds. NCB Capital Markets Limited extended its 10.50 per cent bond to December 23 while a Victoria Mutual Investments Limited bond of the same tenure had an interest rate of 10.75 per cent. These bond offerings are also coming at the same time as Image Plus Consultants Limited’s initial public offering (IPO) which opened on Wednesday with the company seeking $495.78 million.

Its subsidiary Mayberry Jamaican Equities Limited has elected to change how it files its fourth quarter financials. It will move from submitting its audited financials within 60 days after the financial year ends to submitting an unaudited fourth quarter within 45 days after the quarter ends and its audited financials within 90 days. Mayberry Investments will continue to submit its audited financials within 60 days with both companies’ financial year ending on December 31.

Any tranche that is oversubscribed is likely to be allocated on a pro-rata basis. The confirmation of allotment is to be done within six days of the closing date and posted to the JSE’s website. Refunds should be available within 10 days of the closing date where originally submitted and the secured bond is expected to be listed on the JSE within 21 days of the closing date.

Interested investors are left with these remaining three tranches as options to subscribe to for the offer which opened on December 2 and closes on January 6. Proven Wealth Limited, Sagicor Investments Jamaica Limited, Stocks and Securities Limited, JMMB Securities Limited, and Scotia Investments Jamaica Limited are the selling agents. Mayberry’s minimum $1-million opening requirement is waived during the bond offering which opens up the opportunity for retail investors to open an account with Mayberry Investments.