## Notes to the financial statements for the financial year ended 31 March 2014 continued 

## Note 27 

## Loan capital 

## Subordinated debt 

Agreements between the Consolidated Entity and the lenders provide that, in the event of liquidation, entitlement of such lenders to repayment of the principal sum and interest thereon is and shall at all times be and remain subordinated to the rights of all other present and future creditors of the Consolidated Entity. Details of selected capital instruments are discussed below. 

## Macquarie Convertible Preference Securities 

In July 2008, Macquarie CPS Trust, a subsidiary of the Company issued six million Macquarie CPS at face value of $100 each. These instruments were non-cumulative and unsecured and were potentially convertible to Macquarie ordinary shares. These instruments were redeemed during the year. 

## Macquarie Preferred Membership Interests 

On 2 December 2010, Macquarie PMI LLC, a subsidiary of the Company, issued $US400 million of US$ denominated Preferred Membership Interests (Macquarie PMI). These instruments are non-cumulative and unsecured equity interests in the issuer. They are redeemable at the Company’s option, subject to various conditions, on any distribution date from 2 December 2015, and are non- dilutive, as they will only exchange to MGL preference shares in specified circumstances, and mandatorily on 26 November 2035. 

The Macquarie PMI bear discretionary fixed-rate coupons at 8.375 per cent per annum, paid semi-annually. If coupons are not paid, the Company will be restricted from paying dividends or returning capital on ordinary shares until two full coupon payments have been made. 

The total number of MGL preference shares that would be issued if Macquarie PMI were exchanged at 31 March 2014 would be 400,000 (31 March 2013: 400,000). 

## Exchangeable Capital Securities 

On 26 March 2012, MBL, acting through its London Branch, issued US$250 million of Exchangeable Capital Securities (ECS). 

The ECS, being unsecured subordinated notes, pay discretionary, non-cumulative interest of 10.25 per cent per annum, payable semi annually in arrears, with the rate to be reset on 20 June 2017 (and each fifth anniversary thereafter) if the ECS remain outstanding after this time. If interest is not paid on the ECS, MBL and the Company will be restricted from paying dividends or returning capital on their ordinary shares until the next interest payment date. 

Subject to certain conditions being met, the ECS will be exchanged for a variable number of fully paid ordinary shares of the Company on 20 June 2017, or on any interest payment date thereafter, with exchange to occur no later than 20 June 2057. The ECS may also be exchanged earlier 

on an acquisition event (where a person acquires control of MBL or the Company), where MBL’s common equity Tier 1 capital ratio falls below 5.125 per cent, or where APRA determines MBL would be non-viable without an exchange or a public sector injection of capital (or equivalent support). 

If exchange occurs, a variable number of the Company's ordinary shares will be issued at a 5 per cent discount to the share price, as quoted on the ASX and converted to US dollars, determined over a period immediately prior to the date of that exchange. 

No ECS were exchanged during the financial year. The total number of ordinary shares that would be issued if ECS were exchanged at 31 March 2014 would be 5,067,970 (31 March 2013: 6,800,228). The maximum number of ordinary shares that can be issued on an exchange is 17,689,525. 

The ECS will only be redeemable, subject to APRA’s written approval, at the discretion of the Bank in limited circumstances, including following a change in law that has an impact on the regulatory or tax treatment of the ECS. 

As at 31 March 2014, the remaining principal liability related to the ECS was US$250 million (31 March 2013: US$250 million). 

## Macquarie Group Capital Notes 

On 7 June 2013, the Company issued six million Macquarie Group Capital Notes (MCN) at face value of $100 each. These instruments are non-cumulative and unsecured and may be redeemed at face value on 7 June 2018, 7 December 2018 or 7 June 2019 (subject to certain conditions being satisfied) or earlier in specified circumstances. 

MCN may also be exchanged into a variable number of the Company’s ordinary shares (subject to certain conditions being satisfied) on these redemption dates or mandatorily exchanged on 7 June 2021. The MCN may also be exchanged earlier on an acquisition event (where a person acquires control of the Company) or where APRA determines the Company would be non-viable without an exchange or a public sector injection of capital (or equivalent support). 

The maximum that MCN Holders will receive in the event of an exchange is $101 worth of ordinary shares per MCN held. The total number of ordinary shares that would be issued if MCN were exchanged at 31 March 2014 would be 10,824,681. The maximum number of ordinary shares that can be issued on an exchange is 70,721,358. 

The MCN pay discretionary, floating rate cash distributions equal to 180-day BBSW plus a fixed margin of 4.00 percent per annum, adjusted for franking credits, paid semi-annually. If interest is not paid on the MCN, the Company will be restricted from paying dividends or returning capital on ordinary shares until the next interest payment date. 

