On Monday last week, Qantas announced through the ASX that it had issued $125m of 7 year, fixed rate bonds. Whilst the approach taken for the issue was not unique, it was slightly unusual in that the issue had been fully underwritten and taken up by Deutsche Bank.

Whilst Qantas were quite light on details when releasing the transaction, they did note the proceeds will be used to pay down existing shorter term debt, helping extend the company’s debt maturity profile.

Qantas has been a rare bond issuer in Australia (existing outstanding bonds are denominated in USD) so this issue gives Deutsche Bank the opportunity to take exposure to one of Australia’s best known brands. Deutsche is providing access to these high yielding, investment grade, senior unsecured bonds to their funds and international investors and we expect there is likely to be only limited opportunities for the broader market to invest.

These AUD denominated bonds are offering excellent relative value returns to investors compared to both other investment grade Australian corporate issues and against Qantas’ own USD issues. The +174bps on offer from the companies USD 2016 notes and the +185bps on offer from the USD 5yr CDS are significantly lower than the +238bps on offer in this AUD issue. That translates to a yield to maturity of 5.95% (and running yield of 6.30%) at current pricing.

We have limited access to these bonds for wholesale investors in minimum parcel sizes of $50,000 however the relatively small size of the issue and Deutsche Bank’s appetite is likely to see this window of opportunity close quickly.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.