Sullivan & Cromwell acted as US legal counsel to Commonwealth Bank of Australia (CBA), which recently completed a Rule 144A/Regulation S offering of US$550 ($855) million of 5.8 per cent trust-preferred securities. Goldman Sachs and Merrill Lynch were the underwriters. This was CBA’s first hybrid securities offering in the US and was completed on an accelerated timetable to take advantage of the attractive market for trust-preferred securities in the US. The securities are redeemable by CBA after 12 years and, if not redeemed, holders have the option to elect to have their securities remarketed by CBA or, if CBA chooses not to undertake remarketing, to convert their securities into ordinary CBA shares.
Sullivan & Cromwell partner Waldo Jones said the principal advantages of trust-preferred securities are that they: allow CBA to obtain an interest deduction in New Zealand for the payments by CBA’s New Zealand Branch to the Trust who then in turn make distributions to investors; permit US investors to treat the securities as fixed-term debt and the distributions as interest; are generally treated as equity for CBA’s accounting purposes; and are generally treated as ‘Tier 1’ (equity) capital of CBA for Australian bank regulatory purposes. In order to obtain all of these advantages, the securities had to be structured to satisfy various competing legal, tax and regulatory requirements in Australia, the US and NZ. This required the coordination of the legal advice in those jurisdictions and around the clock negotiations and support from a dedicated team of Sullivan & Cromwell lawyers in Australia and New York.
An added complication was that the offering was being conducted following CBA’s fiscal year-end of June 30, but before the announcement of its year-end results, says Jones.
The Sullivan & Cromwell team was led by Waldo Jones and Kevin West in Sydney and Jeffrey Browne in Melbourne, with the assistance of Jonathon Redwood and Nicholas Hecker in New York.
Allens Arthur Robinson, Sydney, was the Australian counsel to CBA, Russell McVeagh, Auckland was the CBA New Zealand counsel. Richards, Layton & Finger acted for CBA Delaware and Sidley, Austin, Brown & Wood, New York was the US counsel to the underwriters. L.E. Taylor and Alison Iverach were the in-house counsel involved from the CBA legal department.
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