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Macquarie launches new high yield product

31 March 2005

Macquarie Fortress Investments Limited, as trustee of the Macquarie New Zealand Fortress Notes Trust (Macquarie), this week announced the opening of an offer of Macquarie New Zealand Fortress Notes (Fortress Notes) to retail investors in New Zealand.1

Fortress Notes are a New Zealand dollar denominated debt security which aims to deliver a high, regular yield (floating rate) to investors. The yield will be derived from a portfolio consisting predominantly of US dollar senior secured corporate loans.

Additionally Fortress Notes aim to repay investors' initial capital at maturity in seven years2.

The Head of Macquarie Financial Services Group in New Zealand, John Rowley, said he expects Fortress Notes to appeal to New Zealanders seeking to make investments that return a high, regular income.

“With a projected interest rate of 11.5%3 before tax for the first full year after the initial investment period4, Fortress Notes could be considered as an alternative to other income-producing investments such as debentures, corporate bonds and property,” Mr Rowley said.

“While the return of investors' capital is not guaranteed, the senior secured loan market historically displays significantly less volatility than equities and fixed interest alternatives,” he said.

After the first year following the initial investment period, Fortress Notes will target an interest rate of 4.5% p.a. over the New Zealand 90 day bank bill rate.

Mr Rowley said it was the first time New Zealand retail investors have had the opportunity to access the US senior secured loan market, which exceeds US$1 trillion.

“A senior secured loan is a loan generally made by a bank to a company. In the same way that a bank takes a mortgage over your home to secure a residential mortgage, senior secured loans are secured by the assets of the borrowing company.”

Mr Rowley said senior secured loans were an attractive asset class for three main reasons.

“Firstly, senior secured loans typically offer regular, quarterly interest payments. Secondly, historically they have delivered positive returns over time but with less volatility than equities and fixed interest alternatives. And thirdly, they offer a floating interest rate that minimises capital fluctuations as interest rates change,” Mr Rowley said.

Another benefit of senior secured loans is that in the event of a default, senior lenders generally recover a higher proportion of outstanding amounts, compared to the lower recoveries on unsecured bonds or debentures.

The portfolio of senior secured loans to which Fortress Notes are exposed is selected and actively managed by specialist senior loans manager, Four Corners Capital Management, LLC (Four Corners), which is 66.67% owned by the Macquarie Bank Group.

Four Corners has a track record since February 2002 of out-performance of senior secured loan indices and currently advises and manages funds with a capacity of approximately US$2.7 billion of assets.

This is the first time Macquarie has offered a Fortress product in New Zealand. Past offers of a similar product in Australia have proven popular with retail investors raising more than A$90 million.

The offer opened on 29 March, and closes on 6 May 2005. The minimum subscription is $5,000. Greenslades Limited is Co-Lead Manager to the offer.

Macquarie has applied to have Fortress Notes listed on the NZX debt market, the NZDX, which may provide liquidity if investors wish to sell their investment prior to maturity5. It is intended that the Fortress Notes will list on the NZDX on 23 May.

To request a copy of the Investment Statement and Prospectus, investors should contact their financial adviser, or contact:

Macquarie

Freephone 0800 407 609
www.macquarie.co.nz/fortress

Greenslades

Freephone 0800 88 88 66

For more information:

John Rowley
Head Of Macquarie Financial Services Group
Phone +64 9 363 1459
Mobile +64 21 434 377
Email john.rowley@macquarie.com

Hamish Anderson
Marketing Manager, Macquarie Financial Services Group
Phone +64 9 363 1435
Mobile +64 21 513 431
Email hamish.anderson@macquarie.com

 1 Fortress Notes are secured by a first ranking security interest over the Loan Notes (issued by the trustee of the Knight Portfolio Trust) and the issuer's rights under a junior ranking charge given by the Knight Portfolio Trust over the assets and undertakings of the proportion of the Knight Portfolio Trust relating to the Loan Notes. The security is subject to any statutory preferences, and reimbursement of trustee and receiver charges.
 2 Subject to early redemption in the circumstances described in the Investment Statement and Prospectus dated 14 March 2005. The maturity date may be extended at the discretion of the issuer for up to an additional three years. Return of capital depends on the performance of the investments of the Macquarie New Zealand Fortress Notes Trust.
 3 While Macquarie Fortress Investments Limited (MFIL) believes it has a reasonable basis for its Interest Rate projections, there is no guarantee that this projection will be achieved or that the assumptions on which the projection is based will be realised in the future. Potential investors should refer to the Investment Statement and Prospectus dated 14 March 2005 for more information on returns, and the assumptions on which the projected interest rate is based. Investors should be aware that the projection is predictive in nature and may be affected by inaccuracy of assumptions, risks or other uncertainties which may cause the actual returns to differ.
 4  The Initial Investment Period ends on 31 August 2005.
 5  There is no guarantee as to the liquidity of the market for Fortress Notes. An application has been made to NZX for permission to list the Fortress Notes, and all the requirements of NZX relating thereto that can be complied with on or before today have been duly complied with. However, NZX accepts no responsibility for any statement in this document.

MFIL is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) and MFIL's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MFIL.
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Any Macquarie subsidiary noted on this page is not an authorised deposit-taking institution for the purposes of the Banking Act (Cwth) 1959. That subsidiary's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise.