Heartland Bank lodges limited disclosure statement
11 April 2023
HEARTLAND BANK LODGES LIMITED DISCLOSURE DOCUMENT
Heartland Bank Limited (Heartland) has registered a Limited Disclosure Document dated 11 April 2023
(LDD) for its offer of up to NZ$75 million (with the right to accept oversubscriptions of up to an additional
NZ$50 million at Heartland’s discretion) of unsecured subordinated notes (Notes) to New Zealand
investors and certain overseas institutional investors.
The Notes will constitute Tier 2 Capital for Heartland’s regulatory capital requirements. The Notes will
have a 10 year maturity date of 28 April 2033, but may be redeemed early, if certain conditions are met,
on the First Optional Redemption Date (28 April 2028) or on any Interest Payment Date after that date,
or on any Interest Payment Date if a tax or regulatory event occurs.
The Notes have a credit rating of BB+ from Fitch Australia Pty Limited (Fitch). Heartland has a long-
term unsecured credit rating of BBB (stable) from Fitch.
The interest rate will be a fixed rate for the first 5 years, until the First Optional Redemption Date, after
which it will change to a floating rate that resets at quarterly intervals.
The offer is expected to open on 17 April 2023 and close on 21 April 2023. The Notes are expected to
be issued on 28 April 2023 and quoted on the NZX Debt Market on 1 May 2023.
Details of the offer and the Notes are contained in the LDD, which is available on the Disclose Register
at https://disclose-register.companiesoffice.govt.nz/ under Heartland’s offer number OFR13495.
Copies of the LDD, the investor presentation for the offer and the indicative terms sheet have also been
provided to NZX with this announcement and are available at www.heartland.co.nz/unsecured-
subordinated-notes-offer, or by contacting one of the Joint Lead Managers to the offer (listed below) or
your usual financial advice provider. The LDD must be given to investors before they decide to acquire
any Notes.
There is no public pool for the offer, with all of the Notes being reserved for clients of the Joint Lead
Managers, Primary Market Participants and other approved financial intermediaries. Investors can
register their interest by contacting a Joint Lead Manager or their usual financial advice provider.
Arranger and Joint Lead Manager
0800 772 142
Joint Lead Managers
0800 275 269 0800 226 263 0800 367 227
ENDS
The person who authorised this announcement:
Leanne Lazarus
Chief Executive Officer, Heartland Bank Limited
For further information and media enquiries, please contact:
Nicola Foley
Group Head of Communications, Heartland Group Holdings Limited
+64 27 345 6809
nicola.foley@heartland.co.nz
Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland, New Zealand
---
Draft: 01.03.2023
3462-7331-4338 4
JOINT LEAD MANAGERS:
Limited
Disclosure
Document
An offer of unsecured subordinated notes
11 April 2023
This document gives you important information about this investment to help you
decide whether you want to invest. There is other useful information about this offer
on www.disclose-register.companiesoffice.govt.nz. Heartland Bank Limited has
prepared this document in accordance with the Financial Markets Conduct Act 2013.
You can also seek advice from a financial advice provider to help you make an
investment decision.
2
1 Key Information Summary
What is this?
This is an offer of unsecured subordinated notes
("Notes"). The Notes are debt securities issued by
Heartland Bank Limited ("Heartland"). You give
Heartland money, and in return Heartland promises to
pay you interest and repay the money at the end of the
term. If Heartland runs into financial trouble, you might
lose some or all of the money you invested.
About the Heartland Banking Group
Heartland is a New Zealand owned and operated
registered bank under the Banking (Prudential
Supervision) Act 1989 ("BPS Act"). The principal
activities of the Heartland Banking Group are the raising
of funds (primarily from retail depositors through
Heartland's savings and deposit products) and providing
funding and other financial services to small-to-medium
sized businesses, and the rural and household sectors,
directly and through its various intermediaries.
Information about Heartland and Heartland's financial
statements are published half-yearly in disclosure
statements required under the BPS Act. Heartland's
disclosure statements can be viewed and downloaded
from the section entitled "Disclosure Statements and
Quarterly Reports" at Heartland's website at
www.heartland.co.nz/about-us/documents-and-forms.
Purpose of this Offer
The Offer will raise Tier 2 Capital to help Heartland meet
its regulatory capital requirements and manage its capital
position. The proceeds of the Offer will be used for
Heartland's general corporate purposes.
Key terms of the Offer
Description of the
debt securities
Unsecured subordinated notes
Term
10 years, ending on the Maturity Date (28 April 2033) if not repaid earlier
Offer amount Up to NZ$75 million. Heartland reserves the right to accept oversubscriptions of up to an
additional NZ$50 million at its discretion.
Face Value and Issue
Price
NZ$1.00 per Note
Minimum
subscription amount
NZ$5,000, and in multiples of NZ$1,000 thereafter
Opening Date
17 April 2023
Closing Time
11.00am on 21 April 2023
Interest rate The interest rate will be a fixed rate for a period of 5 years, after which it will change to a floating
rate that resets at quarterly intervals.
The interest rate for the first 5 years until the First Optional Redemption Date (28 April 2028) will
be a fixed rate equal to the sum of the Swap Rate (a reference rate for a 5 year period) on the
Rate Set Date (21 April 2023) plus the Issue Margin, but in any case will be no less than the
minimum interest rate announced via NZX on or about the Opening Date.
The interest rate from (and including) the First Optional Redemption Date will be a floating rate
which will be reset quarterly to be equal to the sum of the applicable 3 Month Bank Bill Rate (a
benchmark interest rate for a 3 month period) plus the Issue Margin.
If the sum of the 3 Month Bank Bill Rate plus the Issue Margin is less than 0% per annum, the
floating rate will be deemed to be 0% per annum.
Heartland expects to announce an indicative Issue Margin range (which may be subject to
change) via NZX on or about the Opening Date. Heartland will determine the initial interest rate
and the Issue Margin (which may be above, below or within the announced indicative Issue
Margin range) following the Bookbuild on the Rate Set Date (21 April 2023), and will announce
the initial interest rate and the Issue Margin via NZX on or about that date.
Each time the interest rate is reset after the First Optional Redemption Date, Heartland will
announce the new interest rate via NZX on or about the date it is reset.
Interest Payment
Dates
Interest on your Notes is scheduled to be paid quarterly in arrear on each 28 January, 28 April,
28 July and 28 October during the Term and on the date on which your Notes are repaid.
3
Interest payments are
conditional
The payment of interest on each Interest Payment Date (other than on the Maturity Date (28
April 2033)) is conditional on Heartland satisfying the Solvency Condition. See Section 5.2 of
this LDD (Interest).
Unpaid interest
accumulates
If interest is not paid on your Notes on an Interest Payment Date because the Solvency
Condition is not satisfied, the unpaid interest will remain owing and will itself bear interest. See
Section 5.2 of this LDD (Interest).
Fees and charges Heartland will not charge you brokerage or any other fees to apply or subscribe for Notes.
However, you may have to pay brokerage to the firm that gives you an allocation of Notes.
No guarantee
The Notes are not guaranteed by any member of the
Heartland Banking Group, Heartland Group Holdings
Limited (Heartland's parent company) or by any other
person. Heartland is solely responsible for repayment of
the Notes.
Neither Heartland Group Holdings Limited nor any other
company in the Heartland Group Holdings Limited group
stands behind or otherwise guarantees the Notes.
How you can get your money out early
Repayment of your Notes
Your Notes are a long term investment with a Term of 10
years. Heartland must repay your Notes on the Maturity
Date (28 April 2033).
Heartland may repay:
all or some of your Notes early on the First Optional
Redemption Date (28 April 2028) or on any Interest
Payment Date after that date; and/or
all (but not some) of your Notes early on any Interest
Payment Date if a Tax Event or Regulatory Event
has occurred.
Early repayment is subject to certain conditions being met
(including Heartland obtaining the Reserve Bank's prior
approval and the Solvency Condition being satisfied).
See Section 5.3 of this LDD (Repayment of the Notes).
You have no right to require that your Notes be repaid
early for any reason.
Sale on NZX
Heartland intends to quote these Notes on the NZX Debt
Market. This means you may be able to sell them on the
NZX Debt Market before the end of their term if there are
interested buyers. If you sell your Notes, the price you get
will vary depending on factors such as the financial
condition of the Heartland Banking Group and
movements in the market interest rates. You may receive
less than the full amount that you paid for them.
How the Notes rank for repayment
In a liquidation of Heartland, each Note gives you the right
to payment of an amount equal to the Face Value plus all
accrued but unpaid interest. Your right to payment of this
amount will rank:
behind the claims of all depositors and other
creditors of Heartland, except for the claims and
rights described below;
equally with the claims of other Holders and holders
of any other securities and obligations of Heartland
that rank equally with your Notes; and
ahead of the rights of Heartland's shareholders and
holders of any other securities and obligations of
Heartland that rank behind the Notes.
In a liquidation of Heartland, it is unlikely that there will be
surplus assets available for the liquidator to pay any
amount to you in respect of your Notes.
Section 5.7 of this LDD (Ranking) explains how the Notes
rank in a liquidation of Heartland.
No security
The Notes are not secured against any asset of any
member of the Heartland Banking Group, Heartland
Group Holdings Limited or any other person.
Key risks affecting this investment
Investments in debt securities have risks. A key risk is
that Heartland does not meet its commitments to repay
you or pay you interest (credit risk). Section 6 of this
document (risks of investing) discusses the main factors
that give rise to the risk. You should consider if the credit
risk of these debt securities is suitable for you.
The interest rate for these Notes should also reflect the
degree of credit risk. In general, higher returns are
demanded by investors from businesses with higher risk
of defaulting on their commitments. You need to decide
whether the offer is fair. Heartland considers that the
most significant risk factors are:
Heartland is exposed to the risk that customers or
counterparties default on their repayment or other
contractual obligations to Heartland. A failure to
adequately manage credit risk and/or provide for
potential losses may result in Heartland suffering
financial losses. Heartland’s exposure to the New
Zealand household sector (in particular, its motor
vehicle and reverse mortgage lending portfolios),
asset financing and the business, rural and livestock
sectors mean the economic, social and
environmental conditions in New Zealand may have
a material impact on Heartland's credit risk.
Heartland funds its business principally from retail
deposits, complemented by funding from financial
institutions. Heartland’s ability to raise retail deposits
and obtain institutional funding on acceptable terms
may be affected by a range of factors, including a
deterioration and/or volatility in market conditions
and/or Heartland’s credit rating. An inability to obtain
4
sufficient funding may adversely affect Heartland’s
financial performance or condition.
Heartland is exposed to the risk of movements of
interest rates. This could adversely affect Heartland’s
financial performance or condition.
Heartland is exposed to execution risk as it pursues
its growth objectives and may be adversely impacted
by the tight labour market. A failure of Heartland to
execute its growth strategy within its original
timeframes and budget (or at all) may result in costs
being incurred by Heartland without equivalent
benefits or negatively impact Heartland’s ability to
compete in an increasingly competitive domestic
lending market.
Heartland relies on the performance, reliability and
availability of its information technology,
communication and other business systems. Cyber-
attacks, interruption or failure of Heartland’s key
systems and cybersecurity measures or a failure to
appropriately implement key technology system
upgrades could result in significant disruptions to
Heartland’s business, reputational damage,
heightened regulatory scrutiny and/or impact
Heartland's financial performance or condition.
Heartland could suffer losses as a result of exposure
to operational risk factors, such as human error,
intentional actions such as theft or fraud, the failure
of internal or external processes and systems, or
external events which are wholly or partially beyond
Heartland’s control. This could have an adverse
impact on Heartland’s operations or reputation and
therefore customer demand.
Heartland operates in an environment of significant
regulatory supervision, which is subject to significant
changes and extensive and increasing regulation. A
failure to comply with the relevant laws, regulations
or legislative policy, and/or changes to those rules
and regulations, could adversely affect Heartland’s
business, financial condition or performance.
If one or more of these risks eventuate, either individually
or in combination, the detrimental impact on Heartland's
financial performance may in turn:
adversely affect the market price and liquidity of
your Notes; and/or
result in Heartland not making a payment on your
Notes.
This summary does not cover all of the risks of investing
in the Notes. You should also read Section 5 (Key
features of the Notes) and Section 6 (Risks of investing)
of this LDD.
What is the Notes' credit rating?
A credit rating is an independent opinion of the capability
and willingness of an entity to repay its debts (in other
words, its creditworthiness). It is not a guarantee that the
financial product being offered is a safe investment. A
credit rating should be considered alongside all other
relevant information when making an investment
decision.
The Notes have been rated by Fitch Australia Pty Limited
("Fitch"). Fitch gives ratings from AAA through to C,
excluding ratings attached to entities in default. Fitch
ratings from AA to CCC may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing
within the rating categories.
As at the date of this LDD, the Notes have a credit rating
of BB+ from Fitch.
Rating Summary descriptions of the rating
AAA Highest credit quality – Exceptionally strong capacity for payment of financial commitments.
AA Very high credit quality – Very strong capacity for payment of financial commitments.
A
High credit quality – Strong capacity for payment of financial commitments, but may be more
vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB
Good credit quality – Adequate capacity for payment of financial commitments, but adverse
business or economic conditions are more likely to impair the capacity to meet financial
commitments.
Fitch credit
rating of
the Notes:
BB+
BB
Speculative – Elevated vulnerability to default risk, particularly in the event of adverse changes in
business or economic conditions over time. However, business or financial flexibility exists that
supports the servicing of financial commitments.
B
Highly speculative – Material default risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued payment is
vulnerable to deterioration in the business and economic environment.
CCC Substantial credit risk – Very low margin of safety. Default is a real possibility.
CC Very high levels of credit risk – Default of some kind appears probable.
C Near default – Default or default-like process has begun, or the issuer is in standstill.
5
Table of contents
1 Key Information Summary 2
2 Key dates and offer process 6
3 Terms of the offer 6
4 Purpose of the offer 8
5 Key features of the Notes 9
6 Risks of investing 14
7 Tax 17
8 Tax consequences for overseas Holders 18
9 Information about Heartland 18
10 Other information relating to the Offer 20
11 How to complain 22
12 Where you can find more information 23
13 How to apply 23
14 Contact information 24
15 Glossary 25
6
2 Key dates and offer process
Opening Date
17 April 2023
The minimum interest rate and the indicative Issue Margin
range will be determined and announced on this date.
Rate Set Date 21 April 2023
Closing Time 11.00am on 21 April 2023
Issue Date/allotment date 28 April 2023
Expected date of initial quotation and trading of the
Notes on the NZX Debt Market
1 May 2023
First Interest Payment Date 28 July 2023
Interest Payment Dates
28 January, 28 April, 28 July and 28 October during the
Term and on the date on which your Notes are repaid
First Optional Redemption Date 28 April 2028
Maturity Date 28 April 2033
The Opening Date and the Closing Time may change. Heartland has the right in its absolute discretion to open or close the
Offer early and to extend the Closing Time. If Heartland changes the Opening Date and/or the Closing Time, the changes
will be announced as soon as reasonably practicable by Heartland via NZX. If the Closing Time is extended, the Rate Set
Date, the Issue Date, the expected date of initial quotation and trading of your Notes on the NZX Debt Market, the Interest
Payment Dates, the First Optional Redemption Date and the Maturity Date may be extended accordingly. Any such changes
will not affect the validity of any applications received. The Interest Payment Dates are subject to the Business Day
convention described in Section 5.5 of this LDD (Payments). Other dates may also be adjusted if they do not fall on a
Business Day.
Heartland reserves the right to cancel the Offer and the issue of the Notes.
3 Terms of the offer
3.1 Description of the Notes
The Notes
Issuer Heartland Bank Limited
Description Unsecured subordinated notes
Term 10 years, ending on the Maturity Date (28 April 2033) if not repaid earlier
Interest rate
The interest rate will be a fixed rate for a period of 5 years, after which it will change to a floating
rate that resets at quarterly intervals.
The interest rate for the first 5 years until the First Optional Redemption Date (28 April 2028) will be
a fixed rate equal to the sum of the Swap Rate (a reference rate for a 5 year period) on the Rate
Set Date (21 April 2023) plus the Issue Margin, but in any case will be no less than the minimum
interest rate announced via NZX on or about the Opening Date.
The interest rate from (and including) the First Optional Redemption Date will be a floating rate
which will be reset quarterly to be equal to the sum of the applicable 3 Month Bank Bill Rate (a
benchmark interest rate for a 3 month period) plus the Issue Margin.
If the sum of the 3 Month Bank Bill Rate plus the Issue Margin is less than 0% per annum, the
floating rate will be deemed to be 0% per annum.
The Issue Margin will not change during the Term.
See Section 5.2 of this LDD (Interest).
7
The Notes
Interest Payment
Dates
Interest on your Notes is scheduled to be paid:
quarterly in arrear on each 28 January, 28 April, 28 July and 28 October during the Term,
commencing on 28 July 2023; and
on the date on which your Notes are repaid.
Interest
payments are
conditional
At any time before the Maturity Date, the payment of interest on each Interest Payment Date is
conditional on Heartland satisfying the Solvency Condition.
See Section 5.2 of this LDD (Interest).
Unpaid interest
accumulates
If interest is not paid on an Interest Payment Date because the Solvency Condition is not satisfied,
the unpaid interest will remain owing and will itself bear interest.
See Section 5.2 of this LDD (Interest).
Repayment
Your Notes must be repaid by Heartland on the Maturity Date (28 April 2033).
However, Heartland may repay all or some of your Notes earlier, on the First Optional Redemption
Date (28 April 2028) or on any Interest Payment Date after that date. Heartland may also repay all
(but not some) of your Notes earlier, on any Interest Payment Date, if a Tax Event or Regulatory
Event has occurred.
Early repayment is subject to certain conditions being met (including Heartland obtaining the
Reserve Bank's prior approval and the Solvency Condition being satisfied).
See Section 5.3 of this LDD (Repayment of the Notes).
You have no right to require that your Notes be repaid early.
Ranking of the
Notes
In a liquidation of Heartland, the Notes rank as unsecured subordinated debt of Heartland, and
your claim will rank behind depositors and other unsubordinated creditors of Heartland.
See Section 5.7 of this LDD (Ranking).
3.2 Description of the Offer
The Offer
Offer amount
Up to NZ$75 million. Heartland reserves the right to accept oversubscriptions of up to an additional
NZ$50 million at its discretion.
Opening Date,
Closing Time and
Issue Date
See Section 2 of this LDD (Key dates and Offer process)
Face Value and
Issue Price
NZ$1.00
Minimum
subscription
amount
NZ$5,000 and in multiples of NZ$1,000 thereafter
How to apply
There is no public pool for the Notes. All Notes will be reserved for subscription by clients of the
Joint Lead Managers, Primary Market Participants and other persons invited to join the Bookbuild.
Application instructions are set out in Section 13 of this LDD (How to apply).
Fees and charges
Heartland will not charge you brokerage or any other fees to apply or subscribe for Notes.
However, you may have to pay brokerage to the firm that gives you an allocation of Notes.
8
The Offer
Allocation of
Notes
Following the Bookbuild, Heartland, in consultation with the Arranger, will allocate Notes to each of
the successful Bookbuild participants. Those participants will in turn be solely responsible for
allocating the Notes to individual investors. This means that Heartland (as issuer) has no direct
role in determining the allocation that you receive from your financial adviser.
Selling
restrictions
The Offer is subject to the selling restrictions contained in Section 10.1 of this LDD (Selling
restrictions).
By subscribing for Notes, you agree to comply with the selling restrictions and to indemnify
Heartland, the Arranger and each Joint Lead Manager (and their respective directors, officers,
employees and agents) in respect of any loss, cost, liability or expense sustained or incurred as a
result of you breaching the selling restrictions contained in Section 10.1 of this LDD (Selling
restrictions).
Governing law The Notes, the Deed Poll and the Offer are governed by New Zealand law.
3.3 Trading your Notes on the NZX Debt Market
Heartland intends to have the Notes quoted on the NZX Debt Market. NZX ticker code HBL1T2 has been reserved for the
Notes. NZX takes no responsibility for the content of this LDD. NZX is a licensed market operator and the NZX Debt Market
is a licensed market under the Financial Markets Conduct Act 2013.
To be eligible to trade your Notes on the NZX Debt Market, you must have an account with a Primary Market Participant, a
common shareholder number or CSN and an authorisation code. If you do not have an account with a Primary Market
Participant, you should be aware that opening an account can take a number of days depending on the Primary Market
Participant's new client procedures.
If you do not have a CSN, you will be automatically assigned one if you invest in the Notes. If you do not have an
authorisation code, it is expected that you will be sent one by the Registrar. If you have an account with a Primary Market
Participant and have not received an authorisation code by the date you want to trade your Notes, your Primary Market
Participant can arrange to obtain your authorisation code from the Registrar. Your Primary Market Participant will be charged
a fee for requesting your authorisation code from the Registrar and may pass this cost on to you.
You may only transfer your Notes in aggregate Face Value multiples of NZ$1,000, and after any transfer you and the
transferee must each hold Notes with an aggregate Face Value of no less than NZ$5,000, or no Notes.
You will likely have to pay brokerage on any transfer of Notes you make through a Primary Market Participant.
3.4 Deed Poll
The terms of the Notes are set out in the Deed Poll. Holders are bound by, and are deemed to have notice of, the Deed
Poll, including the terms of the Notes. If you require further information in relation to the Deed Poll, you may obtain a copy
of the Deed Poll from the Disclose Register at www.disclose-register.companiesoffice.govt.nz (offer number OFR13495).
4 Purpose of the offer
As a registered bank, Heartland is required by the Reserve Bank to maintain an adequate level of regulatory capital to
provide a buffer to absorb losses from its activities. The Offer will raise Tier 2 Capital to help Heartland meet its regulatory
capital requirements and manage its capital position. The proceeds of the Offer will be used for Heartland's general
corporate purposes.
The use of the money raised under the Offer will not change depending on the total amount that is raised. The Offer is not
underwritten.
See Section 9 of this LDD (Information about Heartland) for more information about Heartland's business, regulatory capital
requirements and capital management.
9
5 Key features of the Notes
5.1 General
A number of the key features of the Notes are described in Section 3 of this LDD (Terms of the Offer). Other key features
of the Notes and further detail about some of the key features described earlier in Section 3 of this LDD (Terms of the Offer)
are described below.
5.2 Interest
This Section 5.2 contains further detail on when interest is payable, the interest rate and how interest payments are
calculated.
Interest
Payment Dates
Interest on your Notes is scheduled to be paid quarterly in arrear on each 28 January, 28 April, 28
July and 28 October during the Term and on the date on which your Notes are repaid (see Section
5.3 of this LDD (Repayment of the Notes)). The Interest Payment Dates are subject to the Business
Day convention described in Section 5.5 of this LDD (Payments).
Interest
payments are
conditional
The payment of interest on each Interest Payment Date (other than on the Maturity Date (28 April
2033)) is conditional on Heartland satisfying the Solvency Condition.
The Solvency Condition will be satisfied if Heartland is Solvent at the time the payment is due and
Heartland is able to pay the amount and remain Solvent immediately after paying the amount.
The Solvency Condition does not apply to payments that are required to be made on the Maturity
Date or if Heartland is in liquidation.
Unpaid interest
accumulates
If interest is not paid on an Interest Payment Date because the Solvency Condition is not satisfied,
the unpaid interest will remain owing, will itself bear interest (at the same rate as the Notes), and will
be payable on the earlier of the next Business Day on which the Solvency Condition is satisfied and
the Maturity Date.
Interest rate
The interest rate will be a fixed rate for a period of 5 years, after which it will change to a floating rate
that resets at quarterly intervals.
The interest rate for the first 5 years until the First Optional Redemption Date (28 April 2028) will be a
fixed rate equal to the sum of the Swap Rate on the Rate Set Date (21 April 2023) plus the Issue
Margin, but in any case will be no less than the minimum interest rate announced via NZX on or
about the Opening Date.
The interest rate from (and including) the First Optional Redemption Date will be a floating rate which
will be reset quarterly to be equal to the sum of the applicable 3 Month Bank Bill Rate plus the Issue
Margin.
If the sum of the 3 Month Bank Bill Rate plus the Issue Margin is less than 0% per annum, the
floating rate will be deemed to be 0% per annum.
Heartland will determine the initial interest rate and the Issue Margin following the Bookbuild on the
Rate Set Date, and will announce the initial interest rate and the Issue Margin via NZX on or about
that date.
Each time the interest rate is reset after the First Optional Redemption Date, Heartland will announce
the new interest rate via NZX on or about the date it is reset.
Swap Rate
A swap rate is a reference rate commonly used in New Zealand by major financial institutions. The
Swap Rate is a reference rate for a 5 year period.
The Swap Rate will be determined on the Rate Set Date (21 April 2023).
3 Month Bank
Bill Rate
A bank bill rate is a benchmark interest rate commonly used in New Zealand by major financial
institutions. The 3 Month Bank Bill Rate is a benchmark interest rate for a 3 month period. Bank bill
rates change to reflect market conditions over time, so the 3 Month Bank Bill Rate will likely vary for
each Interest Payment Date after the First Optional Redemption Date (28 April 2028).
The 3 Month Bank Bill Rate that is applicable for an Interest Payment Date will be the 3 Month Bank
Bill Rate as at the previous Interest Payment Date.
Heartland is able to replace the 3 Month Bank Bill Rate with an alternative reference rate if the 3
Month Bank Bill Rate becomes unavailable.
10
Issue Margin
The Issue Margin is the percentage rate per annum determined by Heartland in consultation with the
Joint Lead Managers through the Bookbuild. Heartland expects to announce an indicative Issue
Margin range (which may be subject to change) via NZX on or about the Opening Date. The actual
Issue Margin (which may be above, below or within the announced indicative Issue Margin range)
will be announced by Heartland via NZX on or about the Rate Set Date.
The Issue Margin will not change during the Term.
Calculation of
interest
payments
Until the First Optional Redemption Date (28 April 2028) interest will be payable in equal amounts on
each Interest Payment Date.
After the First Optional Redemption Date the interest payable on each Interest Payment Date will be
calculated on the basis of the actual number of days from (and including) the previous Interest
Payment Date to (but excluding) the Interest Payment Date.
5.3 Repayment of the Notes
Your Notes are a long term investment with a Term of 10 years. However, Heartland may repay all or some of your Notes
early in certain circumstances. This Section 5.3 contains further detail on when Heartland may repay your Notes.
Maturity Date
Your Notes must be repaid by Heartland on the Maturity Date (28 April 2033) if not repaid earlier.
The repayment of your Notes on the Maturity Date is not subject to the Solvency Condition.
When Heartland
may choose to
repay all or
some of your
Notes early
Heartland may, subject to the conditions described below, choose to repay:
all or some of your Notes early on the First Optional Redemption Date or on any Interest
Payment Date after that date; or
all (but not some) of your Notes early on any Interest Payment Date if a Tax Event or a
Regulatory Event has occurred.
First Optional
Redemption
Date
The First Optional Redemption Date is 28 April 2028.
Tax Event
A Tax Event occurs if Heartland determines that:
(a) there has been, or there will be, a change in New Zealand law, regulation, ruling or directive
(including by way of the imposition of, or any change to, any New Zealand law, ruling or
directive) that applies, or is to apply, after the Issue Date;
(b) there has been, or there will be, a change in the application, interpretation or administration
of any New Zealand law, regulation, ruling or directive by any authority (including the New
Zealand Inland Revenue) that applies, or is to apply, after the Issue Date; or
(c) Heartland is or will be required to comply with any change in New Zealand law, regulation,
ruling or directive or changed application, interpretation or administration that applies, or is to
apply, after the Issue Date,
which directly or indirectly affects the taxation treatment in relation to the Notes, provided such event
is not minor and which Heartland could not reasonably have anticipated as at the Issue Date.
Regulatory
Event
A Regulatory Event occurs if Heartland determines that:
(a) all, some or a proportion of all or some Notes are not or will not be treated as Tier 2 Capital
of the Heartland Banking Group under the Reserve Bank's prudential regulatory
requirements (as amended from time to time); or
(b) there has been, or there will be, any amendment to, clarification of, change in or to, change
in the interpretation, application or administration of, or imposition of:
(i) any law, regulation or directive in New Zealand;
(ii) any official administrative pronouncement or action or judicial decision interpreting or
applying any law, regulation or directive in New Zealand; or
(iii) any order, direction, standard, requirement (including any prudential regulatory
requirement), guideline or statement of the Reserve Bank (whether or not having the
force of law),
11
in each case that applies, or is to apply, after the Issue Date and, as a result, Heartland is or
will be adversely affected in relation to its regulatory capital treatment of the Notes, including:
(A) additional requirements would be imposed on the eligibility of the Notes as
Tier 2 Capital; or
(B) there would be a negative impact on the eligibility of the Notes as Tier 2
Capital,
in each case, other than as a result of an event that Heartland could reasonably have anticipated as
at the Issue Date or as a result of an event which is minor.
Conditions to
Heartland
repaying all or
some of your
Notes early
Heartland may only choose to repay all or some of your Notes early if certain conditions are met,
including that:
the Reserve Bank has given its prior written approval to the repayment of the Notes; and
the Solvency Condition is satisfied.
The Solvency Condition will be satisfied if Heartland is Solvent at the time the payment is due and
Heartland is able to pay the amount and remain Solvent immediately after paying the amount.
The Solvency Condition does not apply to the repayment of your Notes on the Maturity Date or if
Heartland is in liquidation.
Amount that is
payable to you
if your Notes
are repaid
You will receive the Face Value of the Notes plus all accrued but unpaid interest on the Notes when
your Notes are repaid.
No certainty
that Heartland
will choose to
repay the Notes
early or be able
to satisfy the
early repayment
conditions
Heartland is under no obligation to repay the Notes early. There is no certainty that Heartland will
choose to repay the Notes:
on the First Optional Redemption Date or any Interest Payment Date after that date; and/or
if a Tax Event or Regulatory Event has occurred,
or that Heartland will be able to satisfy the conditions that apply to early repayment. In particular,
there is no certainty that the Reserve Bank would give its approval to an early repayment.
Holders cannot
choose to have
the Notes
repaid early
You have no right to require that your Notes be repaid early for any reason.
5.4 Events of default
The Notes have very limited events of default and your rights are limited if an event of default occurs, as described below.
Events of default Consequences
Payment default
An event of default will occur if Heartland fails to pay
any amount due in respect of the Notes within
15 Business Days of its due date.
To the extent that a payment on the Notes is not
required to be made because the Solvency Condition
is not satisfied or (in the case of early repayment only)
the Reserve Bank has not given its prior written
approval to the repayment, the amount is not due and
payable and a payment default cannot occur.
If a payment default occurs, you may only bring proceedings:
to recover any amount then due and payable but unpaid
on your Notes (subject to satisfaction of the Solvency
Condition if the payment of the unpaid amount was
subject to the Solvency Condition);
for specific performance of any other obligation in respect
of your Notes; or
for the liquidation of Heartland.
The outcome of any proceedings brought before a court may
be uncertain, and a court may decide not to grant the remedies
sought.
Commencement of liquidation
An event of default will occur on the commencement
of liquidation of Heartland.
In addition to the rights listed above, in the case of the
commencement of liquidation of Heartland, the Face Value of
each Note and any accrued but unpaid interest on the Notes
will immediately become due and payable, and you may claim
in the liquidation for that amount.
In this circumstance, your claim will be subordinated as
described in Section 5.7 of this LDD (Ranking), and it is unlikely
12
Events of default Consequences
that you will receive payment of any amount owing on your
Notes.
5.5 Payments
The following provisions will apply to payments on the Notes.
Business Day convention If an Interest Payment Date on or before the First Optional Redemption Date is not a
Business Day, Heartland will make payment on the next Business Day, and no
adjustment will be made to the amount of interest payable as a result of the delay in
payment.
If an Interest Payment Date after the First Optional Redemption Date is not a Business
Day, then the Interest Payment Date will be the next Business Day, unless that day
falls in the next calendar month, in which case it will be the preceding Business Day,
and, in either case, the amount of interest payable will be adjusted to reflect the actual
payment date.
Record Date and entitlement
to payments
Interest payments on the Notes will be made to the persons who are the Holders as at
the close of business on the 10
th
day before the relevant Interest Payment Date or, if
that day is not a Business Day, the immediately preceding Business Day or such other
date as may be required by NZX.
Any other payments on the Notes will be made to the persons who are the Holders as
at the close of business on the date determined by Heartland and notified to NZX or
such other date as may be required by NZX.
No set-off You do not have any right to set-off any amounts that Heartland owes to you in
connection with the Notes against any amounts that you owe to Heartland (whether in
connection with the Notes or otherwise).
Tax indemnity If tax is not correctly deducted from a payment to you or if Heartland is required to pay
an amount of tax on your behalf (for example, because you did not correctly notify
details about your tax residence), then you indemnify Heartland in respect of any
related liability, which may be recovered from you or withheld from future payments to
you.
5.6 Amendments to the Deed Poll
The terms of the Notes (as set out in the Deed Poll) may be amended in certain circumstances, as described below.
Amendments without Holders'
consent
The terms of the Notes may be amended without your consent if, in Heartland's
reasonable opinion, the amendment:
is made to correct a manifest error, cure an ambiguity or correct or supplement
any defective provision of the terms of the Notes or the Deed Poll;
is of a formal, minor or technical nature;
is necessary or expedient to comply with any law, the provisions of any statute,
the requirements of any statutory authority, the NZX Listing Rules or the listing
or quotation requirements of any securities exchange on which Heartland may
propose to seek a listing or quotation of the Notes;
is necessary or expedient for the purpose of enabling the Notes to be quoted or
to remain quoted on a securities exchange or to be lodged or to remain lodged
in a clearing system or to be offered for sale or for subscription under the laws
for the time being in force in any place;
is reasonably necessary if the 3 Month Bank Bill Rate is replaced by an
alternative reference rate; or
will not materially adversely affect the rights of Holders as a whole.
Amendments with approval of
a special resolution
The terms of the Notes may also be amended with the approval of a special resolution
of Holders. A "special resolution" means a resolution passed at a meeting of Holders,
properly convened and held in accordance with the Deed Poll, by at least 75% of the
votes given on a poll or a resolution in writing signed by Holders holding or
representing (in aggregate) not less than 75% in Face Value of the Notes.
13
Requirement to notify the
Reserve Bank
No amendment can be made to the terms of the Notes unless at least 5 Business Days
prior notice has been given to the Reserve Bank by Heartland, accompanied by any
supporting documentation required by the Reserve Bank's prudential regulatory
requirements.
Amendments are binding on
all Holders
You are bound by all amendments made in accordance with the terms of the Notes
even if you did not agree to them.
5.7 Ranking
Ranking of your Notes
Your Notes are unsecured subordinated debt securities issued by Heartland. In a liquidation of Heartland, each Note gives
you the right to payment of an amount equal to the Face Value plus accrued but unpaid interest. Your right to payment of
this amount will rank:
behind the claims of all depositors and other creditors of Heartland, except for the claims and rights described below;
equally with the claims of other Holders and holders of any other securities and obligations of Heartland that rank
equally with your Notes; and
ahead of the rights of Heartland's shareholders and holders of any other securities and obligations of Heartland that
rank behind the Notes.
In a liquidation of Heartland, it is unlikely that there will be surplus assets available for the liquidator to pay any amount to
you in respect of your Notes.
The following diagram shows how Heartland's liabilities (including the Notes) and equity rank in a liquidation of Heartland.
The diagram does not describe every type of liability or security that Heartland may have while the Notes are outstanding.
Higher
ranking
Ranking in a
liquidation of
Heartland
Description Examples
Liabilities and equity
of Heartland as at 31
December 2022
(NZ$m)
Liabilities that rank in
priority to the Notes
Secured debt and
creditors preferred by
law
Secured liabilities 47.2
Liabilities given
preference by law
including employee
entitlements and certain
taxes
3.4
Unsubordinated
unsecured debt
Depositors and other
unsubordinated creditors
4,077.7
Unsecured
unsubordinated notes
and bonds
327.6
Liabilities that rank
equally with the Notes
(including the Notes)
Term subordinated debt The Notes 125
Liabilities that rank
below the Notes
Perpetual subordinated
debt and other equally
ranked instruments
None 0
Lower
ranking
Equity* Equity
Ordinary shares,
reserves and retained
earnings
723.1
14
Basis of preparation of table
Amounts in the table above (except for the estimated value of the Notes) are indicative amounts derived from Heartland's
unaudited financial statements for the six months ended 31 December 2022. The actual amounts of liabilities and equity of
Heartland at the point of its liquidation would be different to the indicative amounts set out in the diagram above.
The table has been adjusted to include the issue of Notes, based on an estimated issue size of NZ$125 million (including
NZ$50 million of oversubscriptions). This adjustment does not affect the other amounts listed in the table. The total value
of the Notes to be issued will be announced by Heartland on or about the Rate Set Date (21 April 2023) via NZX.
Amounts shown are presented in millions of New Zealand dollars and may be subject to rounding adjustments.
* The table above has not been adjusted to take into account the NZ$30 million dividend paid by Heartland to its parent
company, Heartland Group Holdings Limited, on 21 March 2023. This dividend payment reduced Heartland's equity by
NZ$30 million.
No restrictions on issuing further securities or creating further liabilities
There are no restrictions on Heartland issuing further securities or creating further liabilities after the Notes have been issued
that rank equally with, or in priority to, the Notes in a liquidation of Heartland.
Heartland could therefore, at any time after the Issue Date, issue further securities or create further liabilities that rank
equally with or in priority to the Notes.
6 Risks of investing
6.1 Introduction
This Section 6 describes the following potential risks associated with an investment in the Notes:
general risks of investing in the Notes;
significant specific risks relating to Heartland's creditworthiness; and
other specific risks associated with the Notes.
The selection of risks relating to Heartland's creditworthiness has been based on an assessment of a combination of the
probability of a risk occurring and the impact of the risk if it did occur. That assessment is based on Heartland's business
as at the date of this LDD.
You should carefully consider these risk factors (together with the other information in this LDD) before deciding to invest in
the Notes.
This Section 6 does not cover all of the risks of investing in the Notes. Additional risks that Heartland is not aware of, or that
it currently considers are not material, and new risks may also become important risks over time.
The statement of risks in this Section 6 does not take account of your personal circumstances, financial position or
investment requirements. Before making any investment decision, you should consider the suitability of an investment in
the Notes in light of your individual risk profile for investments, investment objectives and personal circumstances (including
financial and taxation issues) and consult your financial adviser.
6.2 General risks
An investment in the Notes is subject to the following general risks:
The risk that Heartland encounters financial difficulty which has an adverse effect on your investment
If Heartland encounters financial difficulty, this may in turn:
adversely affect the market price and liquidity of your Notes; and/or
result in Heartland not making a payment on your Notes.
If Heartland becomes insolvent and is placed in liquidation, it is highly likely that you will lose all of your investment.
Market risks associated with the Notes
The market price of the Notes may fluctuate up or down and the Notes may trade below their Face Value
The market price of the Notes on the NZX Debt Market may fluctuate due to various factors, including liquidity and changes
in interest rates, Heartland's financial position, regulations, Heartland's credit rating or the credit rating of the Notes (including
as a result of a change in rating methodology). The Notes may trade at a market price below their Face Value, and the
market price of the Notes may be more sensitive to changes in factors such as economic conditions, liquidity and risk
tolerances than the market price of unsubordinated securities issued by Heartland or other issuers. If you were to sell your
Notes at a time when the market price of the Notes was lower than their Face Value, you would lose some of the money
you invested.
15
The liquidity of the Notes may be low
The market for the Notes may not be liquid and may be less liquid than that of other securities issued by Heartland or other
issuers. If liquidity is low, you may not be able to sell your Notes at an acceptable price, or at all.
6.3 Specific risks relating to Heartland's creditworthiness
Heartland is exposed to a number of risks that may affect its business and therefore its financial performance and
creditworthiness. As a bank, these include risks which may arise out of external events, such as a downturn in economic
conditions both domestically and globally, an extreme weather or other natural disaster event or a global pandemic.
The risks in this section are the specific risks which Heartland has determined are particularly significant to Heartland’s
creditworthiness.
Heartland is exposed to credit risk and may incur losses from defaults by customers and counterparties
As a bank, Heartland’s core business is lending money. Heartland is therefore exposed to the risk that borrowers fail to pay
on time or at all, and that it is unable to recover the full amount owed to it (including from any assets held as security).
Heartland is also exposed to the risk that other counterparties fail to meet their contractual obligations to Heartland.
This could occur as a result of a material downturn in the domestic or global economies which may increase unemployment,
cause adverse operating conditions for businesses, increase loan defaults and/or decrease property prices and the value
of other assets held by Heartland as security.
As at 31 December 2022, over half of Heartland’s lending was to the New Zealand household sector – over half of that
lending was motor vehicle lending and the balance predominantly being reverse mortgage lending, together with some
residential mortgage lending. The rest of Heartland’s lending was principally asset financing, and lending to small-to-medium
sized New Zealand businesses and to New Zealand's rural sector (including small-to-medium sized New Zealand farming
businesses and livestock lending). Heartland's significant exposure to these sectors means that the economic, social and
environmental conditions in New Zealand may have a material impact on Heartland’s credit risk. For example:
Reverse mortgage loan borrowers are guaranteed lifetime occupancy of their property, make no payments until the
last borrower leaves the property and, at that time, are only required to repay their loan up to the sale proceeds of the
property. This means that Heartland is exposed to the risk that the size of each reverse mortgage loan exceeds the
value of the property at the time of repayment.
Heartland's lending to the rural sector includes financing or taking security over livestock. Fluctuations in the market
price of livestock or a widespread outbreak of disease affecting livestock (such as foot and mouth disease) could
increase loan defaults in this sector.
Significant natural disaster or weather events affecting specific geographic regions of New Zealand where Heartland
has material exposures may also increase the risk of loan defaults.
A failure to adequately manage credit risk and/or provide for potential losses could result in Heartland suffering financial
losses (lost principal and interest income), disruption to cash flows and increased collection costs. This, in turn, could affect
Heartland’s profitability and/or capital position and may also affect the credit rating of Heartland or the Notes.
Heartland is exposed to liquidity and funding risk
Heartland’s ability to obtain significant levels of funding on an ongoing basis is fundamental to its business. Heartland relies
on its New Zealand retail deposit base as its principal funding source, complemented by funding from financial institutions.
Heartland’s ability to raise retail deposits and obtain institutional funding on acceptable terms to support its on-going
operations and strategy (which include growth opportunities through acquisitions) may be affected by:
the level of investor confidence in the financial services sector generally, and Heartland in particular;
intensified competition for retail deposits due to domestic economic conditions, natural disasters, climate or pandemic
events or disruption to international institutional funding;
the appetite of any institutional funder to provide funding to or continue funding Heartland, if required;
Heartland’s credit rating (which may change or be withdrawn or suspended at any time); and/or;
a deterioration and/or volatility in market conditions.
If Heartland is unable to fund its assets or meet its payment obligations when they fall due, this may adversely affect its
financial performance or condition.
Interest rate risk may adversely impact on Heartland’s results
Heartland is exposed to the risk that market interest rates will change and impact on Heartland’s results. If interest rates
change, mismatches between repricing dates of interest-bearing assets and liabilities and differences between customer
pricing and wholesale rates available to Heartland could adversely affect its financial performance or condition.
Heartland is exposed to execution risk as it pursues its strategic objectives, and may be adversely impacted by the
tight labour market
Heartland’s strategy involves continuing to seek and execute on growth opportunities, through business-as-usual growth or
acquisitions. Adverse changes in market conditions or significant delays in suppliers providing required services may mean
16
it is more challenging for Heartland to execute its strategy within its original timeframes and budget. This may result in costs
being incurred by Heartland without equivalent benefits. A failure to execute on growth strategies may also negatively
impact Heartland’s ability to compete in an increasingly competitive domestic lending market, including where Heartland's
entry into new markets is more challenging than expected or an acquired business's performance fails to meet expectations.
The current employment market may make it difficult for Heartland to recruit and retain appropriately qualified staff, with the
skills to deliver major projects and operate Heartland's business. A lack of qualified staff (including absences due to COVID-
19 and other illnesses) could have an impact on how Heartland's business is conducted or the delivery of major projects,
which could adversely affect customer demand and Heartland’s financial performance or condition.
Heartland is exposed to technology risk, including information security risk
Heartland relies on the performance, reliability and availability of its information technology, communication and other
business systems. Cyber-attacks, interruption or failure of Heartland’s key systems and cybersecurity measures (including
by data being compromised) or a failure to appropriately implement key technology system upgrades could result in
significant disruptions to Heartland’s business, reputational damage, heightened regulatory scrutiny and/or impact
Heartland's financial performance or condition.
The delivery of many of Heartland’s products through digital platforms heightens the risk associated with cyber-attacks and
the impacts those attacks may have on the availability of Heartland’s systems and services.
Heartland could suffer losses as a result of exposure to operational risk
Heartland’s business is dependent on its ability to process and monitor, on a daily basis, a large number of transactions.
This may be affected by human error, intentional actions such as internal or external theft or fraud, improper business
practices, the failure of internal or external processes and systems, or external events which are wholly or partially beyond
Heartland’s control.
Any such failure may result in financial losses or a failure to comply with laws or regulations, contractual arrangements or
industry standards, which could have an adverse impact on Heartland's operations or reputation and therefore customer
demand.
Heartland is exposed to risk from non-compliance with, or changes to, laws, regulations or legislative policy
As a bank, Heartland operates in an environment of significant regulatory supervision and is subject to extensive and
increasing regulation. Significant regulatory change or additional regulation which results from Heartland pursuing its
strategic objectives (including acquisitions) may adversely affect Heartland and could have a significant impact on how its
business is conducted, result in increased costs and have an adverse effect on Heartland’s financial performance or
condition.
Failure to comply with the relevant laws, regulations or legislative policy, and/or changes to those rules and regulations,
could also adversely affect Heartland’s business, potentially resulting in regulatory enforcement action (including fines and/or
other pecuniary penalties), litigation (including class actions), changes in licence conditions or licences being revoked or
reputational damage.
Possible impact of risks
Heartland expects some of the risks described in Section 6.3 to arise in the ordinary course of its business. When they do,
this can lead to losses, an increase in costs, a reduction in revenues or a requirement to hold more capital.
Heartland manages these risks as part of its enterprise risk management framework and, in the ordinary course of business,
these risks are not expected to have a materially adverse impact on Heartland or its creditworthiness.
However, circumstances outside of the ordinary course of business can arise, such as widespread and sudden borrower
defaults in a particular sector or sectors of the economy, the dysfunction or unavailability of funding markets, unprecedented
levels of depositor withdrawals or a prolonged cyber-attack that significantly disrupts business. The occurrence of these
types of circumstances may make the risks more difficult to manage and the impact on Heartland more significant. It is not
possible to predict or forecast with certainty the probability or magnitude of any of these risks.
A failure to manage these risks adequately could mean that Heartland is not able to make payments on the Notes when due
or at all. This means you could lose some or all of your investment in the Notes. A deterioration in the creditworthiness or
financial performance of Heartland may adversely affect its credit ratings and/or the market price and liquidity of the Notes,
which means you may not be able to sell your Notes for their Face Value or at all.
6.4 Risks associated with your Notes specifically
An investment in the Notes is subject to the following other risks associated with the Notes specifically:
In a liquidation of Heartland, it is unlikely that you will receive payment of any amount owing on your Notes
The Notes are subordinated. In a liquidation of Heartland, your right to payment of an amount equal to the Face Value plus
all accrued but unpaid interest will rank behind depositors and other unsubordinated creditors of Heartland. It is unlikely
17
that there will be surplus assets available for the liquidator to pay any amount to you in respect of your Notes. See Section
5.7 of this LDD (Ranking).
You have no rights against Heartland if interest is not paid because the Solvency Condition is not satisfied on the
payment date
At any time before the Maturity Date (28 April 2033) the payment of interest on your Notes on an Interest Payment Date is
conditional on Heartland satisfying the Solvency Condition. If Heartland does not pay interest on an Interest Payment Date
because the Solvency Condition is not satisfied, it will not constitute a default by Heartland and you will have no right to take
action against Heartland or any other person in respect of that non-payment. See Section 5.2 of this LDD (Interest).
The interest rate may go down to 0% per annum
The interest rate will be a fixed rate for the first 5 years until the First Optional Redemption Date, after which it will change
to a floating rate that resets at quarterly intervals. The floating rate will be equal to the sum of the applicable 3 Month Bank
Bill Rate plus the Issue Margin. The 3 Month Bank Bill Rate changes to reflect market conditions over time, so the 3 Month
Bank Bill Rate will likely vary for each Interest Payment Date after the First Optional Redemption Date. The 3 Month Bank
Bill Rate may go down, including below 0% per annum. If the sum of the 3 Month Bank Bill Rate plus the Issue Margin is
less than 0% per annum, the floating rate will be deemed to be 0% per annum.
This means that, when the interest rate is reset, it may be lower than the rate that applied for a prior period, and may be 0%
per annum. See Section 5.2 of this LDD (Interest).
You have no right to require early repayment of your Notes and Heartland may not repay your Notes early
The Notes are a long term investment with a Term of 10 years. You have no right to require that your Notes be repaid
early. Heartland is under no obligation to repay the Notes early. There is no certainty that Heartland will choose to repay
the Notes:
on the First Optional Redemption Date or any Interest Payment Date after that date; and/or
if a Tax Event or Regulatory Event has occurred,
or that Heartland will be able to satisfy the conditions that apply to early repayment. In particular, there is no certainty that
the Reserve Bank would give its approval to an early repayment.
Unless your Notes are repaid early by Heartland, to realise your investment before the Maturity Date you would need to sell
your Notes on the NZX Debt Market at the prevailing market price. You may not be able to sell your Notes, and even if you
can, the price may be less than what you paid for your Notes. See Section 5.3 of this LDD (Repayment of the Notes).
Heartland may repay all or some of your Notes early in certain circumstances
In certain circumstances, Heartland can repay all or some of your Notes early (see Section 5.3 of this LDD (Repayment of
the Notes)). You may be disadvantaged if all or some of the Notes are repaid early. For instance, if all or some of the Notes
are repaid early you may not be able to reinvest the proceeds at a comparable return. See Section 5.3 of this LDD
(Repayment of the Notes).
Heartland's regulatory requirements may change
As a New Zealand registered bank, Heartland is subject to regulatory requirements, including conditions of registration that
are imposed by the Reserve Bank. The regulatory requirements that apply to Heartland may change from time to time and
you may be disadvantaged by the changes. For instance, the Reserve Bank restricted banks from redeeming any capital
instruments (such as the Notes) for a period during the COVID-19 pandemic.
7 Tax
The returns on the Notes will be affected by taxes. The information set out in this Section 7 and in Section 8 of this LDD is
based on the New Zealand law in force at the date of this LDD, does not constitute tax advice to any Holder, is general in
nature and is limited to New Zealand taxation only.
Holders that are New Zealand tax residents or are non-residents that are engaged in business in New Zealand through a
fixed establishment in New Zealand and either (1) hold the Notes for the purpose of that business or (2) are a registered
bank in New Zealand and are not associated with Heartland ("New Zealand Holders") will have resident withholding tax
("RWT") deducted from the interest (including amounts deemed to be interest for New Zealand withholding tax purposes)
that is payable under the Notes, unless the Holder has provided the Registrar with appropriate evidence that the Holder has
RWT-exempt status no later than 5 Business Days before the Record Date prior to the relevant payment date.
Deductions or withholdings on account of tax will be made at the maximum rates from time to time applicable by law unless
a Holder provides evidence satisfactory to the Registrar that a lesser rate is applicable.
There may be other tax consequences from acquiring or disposing of the Notes, and from the redemption or maturity of the
Notes.
18
If you have any questions regarding the tax consequences of investing in the Notes you should seek advice from a tax
adviser.
8 Tax consequences for overseas Holders
The information in this Section 8 is based on the New Zealand law in force at the date of this LDD.
If a Holder is not a New Zealand Holder, approved issuer levy ("AIL") will be deducted from interest (including amounts
deemed to be interest for New Zealand withholding tax purposes) paid to the Holder in lieu of deducting non-resident
withholding tax ("NRWT") (unless the Holder elects for NRWT to be deducted or the payment of AIL is not effective to reduce
the applicable rate of NRWT to 0%). If NRWT is deducted, Heartland will not pay any additional amount in respect thereof.
If Heartland applies the AIL regime as described above, Heartland will apply a zero rate of AIL, if possible. Otherwise, AIL
will be deducted at the standard rate of 2% from the interest payment and Heartland will not pay any additional amount in
respect thereof.
Where a Holder who is not a New Zealand Holder holds the Note jointly with a person who is a New Zealand tax resident,
NRWT must be deducted from interest paid to the non-resident at the applicable rate of RWT. Payment of AIL does not
allow a zero per cent rate of NRWT in this case. Further, if a non-resident Holder is entitled to relief from New Zealand tax
on the non-resident's interest income under a double tax agreement, the non-resident must separately apply to Inland
Revenue for that relief by filing a return, as double tax agreement relief does not apply at source in this scenario.
Overseas Holders may be subject to tax in their own jurisdiction and should seek advice from a tax adviser.
9 Information about Heartland
9.1 Heartland's business
Information about Heartland's business is contained in half-yearly disclosure statements Heartland prepares under the BPS
Act. Heartland's disclosure statements are available at the section entitled "Disclosure Statements and Quarterly Reports"
at www.heartland.co.nz/about-us/documents-and-forms. Further information about Heartland's business is contained in the
investor presentation for the Offer, which is available on the Disclose Register at www.disclose-
register.companiesoffice.govt.nz (offer number OFR13495).
Heartland is part of an Australasian financial services group ("Heartland Group") which pursues a strategic objective of
exploring accretive acquisitions, with a particular focus on expansion in Australia.
Heartland Group Holdings Limited (Heartland's parent company) announced on 20 October 2022 that it had signed a
conditional share purchase agreement for the acquisition of authorised deposit-taking institution Challenger Bank Limited
("Challenger Bank"). For regulatory reasons, it was anticipated that Challenger Bank would be required to be held through
an Australian incorporated non-operating holding company ("NOHC"), and engagement was underway for that NOHC to
also be the holding company for Heartland. Heartland Group Holdings Limited is continuing to consider the appropriate
group structure to accommodate the Challenger Bank acquisition.
The final group structure may include Heartland becoming the parent entity of the Heartland Group. If this occurs, Heartland
Banking Group's business would be carried out in both New Zealand and Australia, and Heartland expects Fitch will
complete a rating review of Heartland and the Notes. As at the date of this LDD, Heartland does not expect any change to
the credit ratings or outlook of Heartland or the Notes as a result of that review. The Challenger Bank acquisition, and the
final group structure, remain subject to regulatory approvals (among other things).
9.2 Heartland's regulatory capital requirements
The Notes will qualify as Tier 2 Capital for Heartland under the Reserve Bank's prudential regulatory requirements. Those
requirements include capital adequacy requirements that banks must comply with under their conditions of registration.
These requirements are intended to ensure that an adequate level of capital is maintained, providing a buffer to absorb
losses from a bank's activities before depositors and other senior creditors are affected. The Reserve Bank's approach to
assessing capital adequacy focuses on the credit risk associated with a bank's exposures, market and operational risks and
the quality and quantity of a bank's capital.
The amount of the Notes that Heartland may count as Tier 2 Capital in its capital ratio calculations will decrease by 20%
each year during the final 4 years of the Term before the Maturity Date.
9.2.1 Types of regulatory capital
The Reserve Bank classifies a bank's regulatory capital into different categories. These are referred to as Tier 1 Capital
(consisting of Common Equity Tier 1 Capital and Additional Tier 1 Capital) and Tier 2 Capital.
19
In 2019, the Reserve Bank completed a comprehensive review of the capital framework applying to New Zealand banks.
An outcome of the review was that the regulatory capital requirements for New Zealand banks are being increased
significantly.
The following table sets out the regulatory capital ratios that Heartland must maintain as at the date of this LDD and the
regulatory capital ratios Heartland will be required to maintain once the Reserve Bank's capital reforms are fully implemented
in July 2028. The regulatory capital ratios will increase progressively over this period.
Reserve Bank’s required ratio of
capital to risk weighted assets
1
Capital type Description
The date of this
LDD
2
July 2028
3
Common
Equity Tier 1
Capital
Includes ordinary share capital, retained earnings, and
certain accounting reserves. Some amounts (eg the value
of goodwill) must be deducted to determine the final value
of Common Equity Tier 1 Capital.
More than 7%,
including a
prudential capital
buffer of 2.5%
More than 11.5%,
including a
prudential capital
buffer of 7%
Additional Tier
1 Capital
Additional Tier 1 Capital is a lower quality form of capital
than Common Equity Tier 1 Capital, but is still freely
available to absorb losses. Additional Tier 1 Capital
includes perpetual preference shares.
Up to 1.5% Up to 2.5%
Tier 1 Capital
The sum of Common Equity Tier 1 Capital and Additional
Tier 1 Capital
More than 8.5%,
including a
prudential capital
buffer of 2.5%
More than 14%,
including a
prudential capital
buffer of 7%
Tier 2 Capital
Tier 2 Capital is a lower quality form of capital than Tier 1
Capital, but is still available to absorb losses and
strengthens a bank's overall capital position. Tier 2 Capital
includes subordinated instruments like the Notes.
Up to 2% Up to 2%
Total Capital The sum of Tier 1 Capital and Tier 2 Capital
More than 10.5%,
including a
prudential capital
buffer of 2.5%
More than 16%,
including a
prudential capital
buffer of 7%
9.2.2 Loss absorbing features of the Notes
In very general terms, a capital instrument is available to absorb losses if the holder of the instrument has no, or only a very
limited, ability to demand that payments are made on the instrument.
The Notes will count as Tier 2 Capital, and the terms of the Notes include loss absorbing features. Specifically:
at any time before the Maturity Date (28 April 2033) or the liquidation of Heartland, the payment of interest on your
Notes is conditional on Heartland satisfying the Solvency Condition;
you have no right to require early repayment of your Notes;
any early repayment of your Notes is at Heartland's option and is subject to certain conditions being met (including
Heartland obtaining the Reserve Bank's prior approval and the Solvency Condition being satisfied); and
the Notes are subordinated to unsubordinated creditors of Heartland (including depositors) in the event of a liquidation
of Heartland.
9.3 Heartland's capital management strategy
The primary objectives of Heartland’s capital management are to ensure that Heartland complies with the regulatory capital
requirements prescribed by the Reserve Bank, holds a strong capital position in order to support its business objectives,
meets regulatory capital requirements even in a stressed environment and maximises shareholder value.
Heartland actively measures and manages its capital structure and makes adjustments to this in light of changing economic
conditions and the risk characteristics of its activities. This is to ensure that Heartland has sufficient capital to absorb losses
and to enable Heartland's continued growth. In order to maintain or adjust its capital structure, Heartland may adjust the
1
These ratios include the minimum capital ratios that non-systemically important banks (like Heartland) must maintain and the prudential capital buffer
above the minimum capital ratios that non-systemically important banks must maintain to avoid restrictions on distributions (among other things).
Different minimum capital ratios apply to systemically important banks.
2
These are the ratios that apply to Heartland as at the date of this LDD. Different ratios apply to systemically important New Zealand banks.
3
These are the ratios that will apply to Heartland, from 1 July 2028.
20
amount of dividend payments to its shareholder, reduce discretionary expenditure, return or issue capital or issue capital
securities.
Heartland’s board of directors has overall responsibility for ensuring the Heartland Banking Group has adequate capital in
relation to its risk profile and establishes minimum internal capital levels and limits above the regulatory minimum.
9.4 Heartland's regulatory capital position
As at 31 December 2022, Heartland's regulatory capital is made up of Common Equity Tier 1 Capital, with a ratio of 13.15%
to risk weighted assets. Heartland does not, at the date of this LDD, have any other forms of regulatory capital.
The graph below shows Heartland's historical regulatory capital position under the applicable Reserve Bank rules since
2018.
In the graph above CET1 = Common Equity Tier 1 Capital.
The information in the graph is based on information in Heartland's disclosure statement for each period. It is illustrative
only and does not guarantee or forecast the future regulatory capital position for Heartland. For example, the information
does not take into account the NZ$30 million dividend paid by Heartland to its parent company, Heartland Group Holdings
Limited, on 21 March 2023 as described in Section 5.7 of this LDD (Ranking).
10 Other information relating to the Offer
10.1 Selling restrictions
The Notes may only be offered for sale or sold in accordance with the selling restrictions contained in this Section 10.1
("Selling Restrictions"). By subscribing for Notes, you agree to comply with the Selling Restrictions and to indemnify
Heartland, the Arranger and each Joint Lead Manager (and their respective directors, officers, employees and agents) in
respect of any loss, cost, liability or expense sustained or incurred as a result of you breaching the Selling Restrictions.
The Selling Restrictions may be modified by Heartland, including following a change in a relevant law, regulation or directive.
10.1.1 Initial selling restrictions
The Notes may only be offered in New Zealand only in compliance with all applicable laws and regulations in New Zealand.
No Notes may be offered in any other country or jurisdiction except in compliance with all applicable laws and regulations
of that country or jurisdiction and the applicable Selling Restrictions set out in this Section 10.1.1. This LDD and any offering
material or any documents in connection with the Notes may not be published, delivered or distributed in or from any country
or jurisdiction except under circumstances which will result in compliance with all applicable laws and regulations in that
country or jurisdiction and the applicable Selling Restrictions set out in this Section 10.1.1. The Selling Restrictions set out
in this Section 10.1.1 do not apply once the Notes are issued.
This LDD does not constitute an offer of Notes in any jurisdiction in which it would be unlawful. In particular, this LDD may
not be distributed to any person, and the Notes may not be offered or sold, in any country outside New Zealand except to
the extent permitted below.
Australia
This LDD and the offer of Notes are only made available in Australia to persons to whom an offer of securities can be made
without disclosure in accordance with applicable exemptions in sections 708(8) (sophisticated investors) or 708(11)
21
(professional investors) of the Australian Corporations Act 2001 (the "Corporations Act"). This LDD is not a prospectus,
product disclosure statement or any other formal "disclosure document" for the purposes of Australian law and is not required
to, and does not, contain all the information which would be required in a "disclosure document" under Australian law. This
LDD has not been, and will not be, lodged or registered with the Australian Securities & Investments Commission or the
Australian Securities Exchange. Heartland is not subject to the continuous disclosure requirements that apply in Australia.
Prospective investors should not construe anything in this LDD as legal, business or tax advice nor as financial product
advice for the purposes of Chapter 7 of the Corporations Act. Investors in Australia should be aware that the offer of Notes
for resale in Australia within 12 months of their issue may, under section 707(3) of the Corporations Act, require disclosure
to investors under Part 6D.2 if none of the exemptions in section 708 of the Corporations Act apply to the re-sale.
European Union (excluding Austria)
This LDD has not been, and will not be, registered with or approved by any securities regulator in the European Union.
Accordingly, this LDD may not be made available, nor may the Notes be offered for sale, in the European Union except in
circumstances that do not require a prospectus under Article 1(4) of Regulation (EU) 2017/1129 of the European Parliament
and the Council of the European Union (the "Prospectus Regulation").
In accordance with Article 1(4)(a) of the Prospectus Regulation, an offer of Notes in the European Union is limited to persons
who are "qualified investors" (as defined in Article 2(e) of the Prospectus Regulation).
Hong Kong
WARNING: This LDD has not been, and will not be, registered as a prospectus under the Companies (Winding Up and
Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong, nor has it been authorised by the Securities and Futures
Commission in Hong Kong pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong Kong (the
"SFO"). Accordingly, this LDD may not be distributed, and the Notes may not be offered or sold, in Hong Kong other than
to "professional investors" (as defined in the SFO and any rules made under that ordinance).
No advertisement, invitation or document relating to the Notes has been or will be issued, or has been or will be in the
possession of any person for the purpose of issue, in Hong Kong or elsewhere that is directed at, or the contents of which
are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong
Kong) other than with respect to Notes that are or are intended to be disposed of only to persons outside Hong Kong or only
to professional investors. No person allotted Notes may sell, or offer to sell, such securities in circumstances that amount
to an offer to the public in Hong Kong within six months following the date of issue of such securities.
The contents of this LDD have not been reviewed by any Hong Kong regulatory authority. You are advised to exercise
caution in relation to the offer of Notes. If you are in doubt about any contents of this LDD, you should obtain independent
professional advice.
Japan
The Notes have not been, and will not be, registered under Article 4, paragraph 1 of the Financial Instruments and Exchange
Law of Japan (Law No. 25 of 1948), as amended (the "FIEL") pursuant to an exemption from the registration requirements
applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article
2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the Notes may not be offered or sold,
directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors.
Any Qualified Institutional Investor who acquires Notes may not resell them to any person in Japan that is not a Qualified
Institutional Investor, and acquisition by any such person of Notes is conditional upon the execution of an agreement to that
effect.
Singapore
This LDD and any other materials relating to the Notes have not been, and will not be, lodged or registered as a prospectus
in Singapore with the Monetary Authority of Singapore. Accordingly, this LDD and any other document or materials in
connection with the offer or sale, or invitation for subscription or purchase, of Notes, may not be issued, circulated or
distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore except pursuant to and in accordance with exemptions in Subdivision
(4) Division 1, Part 13 of the Securities and Futures Act 2001 of Singapore (the "SFA") or another exemption under the SFA.
This LDD has been given to you on the basis that you are an "institutional investor" or an "accredited investor" (as such
terms are defined in the SFA). If you are not such an investor, please return this LDD immediately. You may not forward
or circulate this LDD to any other person in Singapore.
Any offer of Notes is not made to you with a view to the Notes being subsequently offered for sale to any other party in
Singapore. On-sale restrictions in Singapore may be applicable to investors who acquire Notes. As such, investors are
advised to acquaint themselves with the SFA provisions relating to resale restrictions in Singapore and comply accordingly.
22
United Kingdom
Neither this LDD nor any other document relating to the offer of Notes has been delivered for approval to the Financial
Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and
Markets Act 2000, as amended ("FSMA")) has been published or is intended to be published in respect of the Notes.
The Notes may not be offered or sold in the United Kingdom by means of this LDD or any other document, except in
circumstances that do not require the publication of a prospectus under section 86(1) of the FSMA. This LDD is issued on
a confidential basis in the United Kingdom to "qualified investors" within the meaning of Article 2(e) of the UK Prospectus
Regulation. This LDD may not be distributed or reproduced, in whole or in part, nor may its contents be disclosed by
recipients, to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received in
connection with the issue or sale of the Notes has only been communicated or caused to be communicated and will only be
communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of the FSMA
does not apply to Heartland.
In the United Kingdom, this LDD is being distributed only to, and is directed at, persons (i) who have professional experience
in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets
Act 2000 (Financial Promotions) Order 2005 ("FPO"), (ii) who fall within the categories of persons referred to in Article
49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be
lawfully communicated (together "relevant persons"). The investment to which this LDD relates is available only to relevant
persons. Any person who is not a relevant person should not act or rely on this LDD.
United States
This LDD does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. The Notes
have not been, and will not be, registered under the US Securities Act of 1933 or the securities laws of any state or other
jurisdiction of the United States. The Notes may not be offered or sold in the United States except in transactions exempt
from, or not subject to, the registration requirements of the US Securities Act and applicable US state securities laws.
Accordingly, the Notes will only be offered and sold outside the United States in compliance with Regulation S under the US
Securities Act.
10.1.2 General selling restrictions
Heartland has not taken and will not take any action that would permit a public or regulated offering of the Notes, or
possession or distribution of any offering material in respect of the Notes, in any country or jurisdiction where action for that
purpose is required (other than New Zealand). The Notes may only be offered for sale or sold in compliance with all
applicable laws and regulations in any jurisdiction in which they are offered, sold or delivered.
Any disclosure statement, information memorandum, prospectus, circular, advertisement or other offering material in respect
of the Notes may only be published, delivered or distributed in compliance with all applicable laws and regulations (including
those of the country or jurisdiction in which the material is published, delivered or distributed).
10.2 Role of the Arranger and Joint Lead Managers
This LDD does not constitute a recommendation by the Arranger, any Joint Lead Manager or any of their respective
directors, officers, employees, agents or advisers to subscribe for, or purchase, any Notes.
The role of the Arranger in relation to the Offer is to provide assistance with arranging the Offer and organising the Bookbuild.
The Joint Lead Managers will assist with the Bookbuild and with the marketing and distribution of the Notes but are not
otherwise involved in the Offer.
Each recipient of this LDD must make their own independent investigation and assessment of the financial condition and
affairs of Heartland before deciding whether or not to invest in the Notes.
11 How to complain
If you have any feedback, concerns or complaints about the Notes, please contact Heartland at:
Heartland Bank Limited
35 Teed Street
Newmarket
Auckland 1023
Contact: Group Head of Communications
Phone: 0800 85 20 20
Email: heartland.bank@heartland.co.nz
23
Heartland is also a member of the Banking Ombudsman Scheme, which is an approved dispute resolution scheme. If
Heartland cannot resolve your complaint to your satisfaction, the Banking Ombudsman Scheme offers a free, independent
service to you and may be able to help. The Banking Ombudsman Scheme can be contacted at:
Banking Ombudsman
Freepost 218002
PO Box 25327
Wellington 6146
Phone: 0800 805 950 or +64 4 915 0400
Email: help@bankomb.org.nz
The Banking Ombudsman Scheme will not charge a fee to any complainant to investigate or resolve a complaint.
Complaints may also be directed to the Financial Markets Authority through its website at www.fma.govt.nz.
12 Where you can find more information
12.1 Disclose Register
Further information relating to Heartland and the Notes is available free of charge on the online Disclose Register maintained
by the Companies Office. The Disclose Register can be accessed at www.disclose-register.companiesoffice.govt.nz (offer
number OFR13495). A copy of the information on the Disclose Register is also available on request to the Registrar of
Financial Service Providers at www.fsp-register.companiesoffice.govt.nz. The information contained on the Disclose
Register includes a copy of the Deed Poll, the investor presentation for the Offer, a credit rating report from Fitch in relation
to the Notes, and other material information.
12.2 NZX
Notices to the Holders may be given by making an announcement on NZX and will be available free of charge at
www.nzx.com/companies/HBL.
12.3 Disclosure statements
Heartland's half-yearly disclosure statements are available free of charge at the section entitled "Disclosure Statements and
Quarterly Reports" at www.heartland.co.nz/about-us/documents-and-forms.
13 How to apply
13.1 How to apply
All of the Notes offered under the Offer have been reserved for subscription by clients of the Joint Lead Managers and
Primary Market Participants and other approved financial intermediaries invited to participate in the Bookbuild.
There is no public pool for the Notes. This means you can only apply for the Notes through a Primary Market Participant or
approved financial intermediary who has obtained an allocation. You can find a Primary Market Participant by visiting
www.nzx.com/investing/find-a-participant.
The Primary Market Participant or approved financial intermediary will:
provide you with a copy of this LDD (if you have not already received a copy);
explain what you need to do to apply for the Notes; and
explain what payments need to be made by you (and by when).
The Primary Market Participant or approved financial intermediary can also explain what arrangements will need to be put
in place for you to trade the Notes (including obtaining a CSN, an authorisation code and opening an account with a Primary
Market Participant) as well as the costs and timeframes for putting such arrangements in place.
13.2 Personal information rights
Personal information provided by you will be held by Heartland and the Registrar and will be used in accordance with
Heartland's Privacy Statement (as such statement may be amended or substituted from time to time). As at the date of this
LDD, Heartland's Privacy Statement is available at www.heartland.co.nz/privacy-statement. You have a right to access and
correct any personal information about you under the Privacy Act 2020. You can also access your information on the
Registrar's website at www.linkmarketservices.co.nz. You will be required to enter your holder number and FIN.
24
14 Contact information
Issuer:
Heartland Bank Limited
35 Teed Street
Newmarket
Auckland 1023
Contact: Group Head of Communications
Phone: 0800 85 20 20
Email: heartland.bank@heartland.co.nz
Registrar:
Link Market Services Limited
Level 30, PwC Tower
15 Customs Street West
Auckland 1010
New Zealand
Phone: +64 9 375 5998
Email: enquiries@linkmarketservices.co.nz
Arranger:
Westpac Banking Corporation
(ABN 33 007 457 141)
(acting through its New Zealand branch)
Westpac on Takutai Square
Level 8
16 Takutai Square
Auckland 1010
New Zealand
Phone: 0800 772 142
Joint Lead Managers:
Bank of New Zealand
Level 6
80 Queen Street
Auckland 1010
New Zealand
Phone: 0800 275 269
Craigs Investment
Partners Limited
Level 32, Vero Centre
48 Shortland Street
Auckland 1010
New Zealand
Phone: 0800 226 263
Forsyth Barr Limited
Level 23, Shortland &
Fort
88 Shortland Street
Auckland 1010
New Zealand
Phone: 0800 367 227
Westpac Banking
Corporation
(ABN 33 007 457 141)
(acting through its
New Zealand branch)
Westpac on Takutai
Square
Level 8
16 Takutai Square
Auckland 1010
New Zealand
Phone: 0800 772 142
25
15 Glossary
3 Month Bank Bill Rate
in relation to an Interest Payment Date after the First Optional Redemption Date:
the FRA rate administered by the New Zealand Financial Benchmark Facility ("NZFBF")
(or any person that takes over the administration of that rate) for bank bills having a term
of, or of about, 3 months as displayed at or about 10.45am (New Zealand time) or such
later time as Heartland may determine on the previous Interest Payment Date on
Bloomberg BKBM page 'GDCO 2805' (or any successor page); or
if that rate is not displayed by 10.45am (New Zealand time) or such later time as
Heartland may determine on that date, the equivalent rate provided by the NZFBF (or
any person that takes over the administration of that rate) at or around that time on that
date,
in each case expressed as a percentage per annum and rounded, if necessary, to the nearest
4 decimal places with 0.00005% being rounded up.
Heartland is able to replace the 3 Month Bank Bill Rate with an alternative reference rate if
the 3 Month Bank Bill Rate becomes unavailable.
Additional Tier 1
Capital
is described in Section 9.2 of this LDD (Heartland's regulatory capital requirements).
Arranger
Westpac Banking Corporation (ABN 33 007 457 141) (acting through its New Zealand
branch).
Bookbuild
the process conducted after the closing of the Offer where certain investors lodge bids for
Notes and, on the basis of those bids, Heartland, in consultation with the Joint Lead
Managers, determines the Issue Margin and allocates the Notes.
BPS Act the Banking (Prudential Supervision) Act 1989.
Business Day
for the purposes of giving notices, a day which is a business day within the meaning of
the NZX Listing Rules; or
for all other purposes, a day that is not a Saturday or Sunday and on which banks are
open for general business in Wellington and Auckland.
Closing Time the "Closing Time" specified in Section 2 of this LDD (Key dates and Offer process).
Common Equity Tier 1
Capital
is described in Section 9.2 of this LDD (Heartland's regulatory capital requirements).
Deed Poll the deed poll made by Heartland under which the Notes will be issued.
Disclose Register
the online offer register maintained by the Companies Office and the Registrar of Financial
Service Providers known as "Disclose", which can be accessed at www.disclose-
register.companiesoffice.govt.nz.
Face Value and Issue
Price
NZ$1.00 per Note.
First Optional
Redemption Date
the "First Optional Redemption Date" specified in Section 2 of this LDD (Key dates and Offer
process).
Fitch Fitch Australia Pty Limited.
Heartland Heartland Bank Limited.
Heartland Banking
Group
has the meaning given to "banking group" in Heartland's conditions of registration (as
amended from time to time).
Holder a person whose name is entered in the Register as a holder of Notes.
Interest Payment Date
each 28 January, 28 April, 28 July and 28 October during the Term and the date on which
your Notes are repaid (see Section 5.2 of this LDD (Interest)), subject to the Business Day
convention described in Section 5.5 of this LDD (Payments).
Issue Date the "Issue Date" specified in Section 2 of this LDD (Key dates and Offer process).
26
Issue Margin
the percentage rate per annum determined by Heartland in consultation with the Joint Lead
Managers through the Bookbuild and announced by Heartland via NZX on or about the Rate
Set Date.
Joint Lead Managers
Bank of New Zealand, Craigs Investment Partners Limited, Forsyth Barr Limited and Westpac
Banking Corporation (ABN 33 007 457 141) (acting through its New Zealand branch).
LDD this Limited Disclosure Document.
Maturity Date the "Maturity Date" specified in Section 2 of this LDD (Key dates and Offer process).
Notes the unsecured subordinated notes offered by Heartland under this LDD.
NZX
NZX Limited, and includes any person or authority which may in the future assume and
perform the functions of NZX Limited.
NZX Debt Market the debt market operated from time to time by NZX.
NZX Listing Rules
means the listing rules of NZX, as amended, varied or waived (whether in respect of
Heartland or generally) from time to time.
Offer the offer of Notes made in this LDD.
Opening Date the "Opening Date" specified in Section 2 of this LDD (Key dates and Offer process).
Primary Market
Participant
has the meaning given in the NZX Participant Rules, as amended from time to time.
Rate Set Date the "Rate Set Date" specified in Section 2 of this LDD (Key dates and Offer process).
Record Date has the meaning given in Section 5.5 of this LDD (Payments).
Register the register of Holders of Notes established and maintained by or on behalf of Heartland.
Registrar Link Market Services Limited.
Regulatory Event has the meaning given in Section 5.3 of this LDD (Repayment of the Notes).
Reserve Bank the Reserve Bank of New Zealand.
Selling Restrictions has the meaning given in Section 10.1 of this LDD (Selling restrictions).
Solvency Condition
a condition to the payment of interest or principal in respect of a Note at any time before the
Maturity Date or the liquidation of Heartland, requiring the following:
Heartland must be Solvent at the time the payment is due; and
Heartland must be able to pay the amount and remain Solvent immediately after paying
the amount.
Solvent satisfying the solvency test contained in section 4 of the Companies Act 1993.
Swap Rate
the mid-market rate for an interest rate swap with a term of 5 years commencing on the Issue
Date, as calculated by the Arranger in consultation with Heartland, according to market
convention, with reference to Bloomberg page 'ICNZ4' (or any successor page) on the Rate
Set Date, expressed as a percentage per annum, adjusted for quarterly payments and
rounded, if necessary, to the nearest 2 decimal places with 0.005% being rounded up.
Tax Event has the meaning given in Section 5.3 of this LDD (Repayment of the Notes).
Term the term of the Notes, being 10 years ending on the Maturity Date if not repaid earlier.
Tier 1 Capital is described in Section 9.2 of this LDD (Heartland's regulatory capital requirements).
Tier 2 Capital is described in Section 9.2 of this LDD (Heartland's regulatory capital requirements).
---
JOINT LEAD MANAGERS:
Summary
Terms Sheet
For an issue of up to NZ$75 million
Heartland Bank Limited
unsecured subordinated notes
(with the right to accept oversubscriptions
of up to an additional NZ$50 million)
as at 11 April 2023
This terms sheet (Terms Sheet) is a summary only. More details are contained in the Limited Disclosure Document (LDD) dated 11 April
2023. The LDD is available free of charge on the online Disclose Register maintained by the Companies Office at www.disclose-
register.companiesoffice.govt.nz (offer number OFR13495) or can be obtained from the Joint Lead Managers or your usual financial
advice provider.
This investment is riskier than a bank deposit. The Heartland Bank Limited (Heartland) unsecured subordinated notes (Notes) are complex
financial products that are not suitable for many investors. If you do not fully understand how they work or the risks associated with them,
you should not invest in them. You should read the LDD and you can seek advice from a financial advice provider to help you make an
investment decision.
Capitalised terms used but not defined in this Terms Sheet have the meaning given to them in the LDD unless the context
otherwise requires.
Key dates for the Offer
LDD lodgement Tuesday, 11 April 2023
Opening Date Monday, 17 April 2023
Rate Set Date Friday, 21 April 2023
Closing Time Friday, 11.00am on 21 April 2023
Issue Date/Allotment Date Friday, 28 April 2023
Expected date of initial quotation
and trading of the Notes on the NZX
Debt Market
Monday, 1 May 2023
Key dates for the Notes
First Interest Payment Date 28 July 2023
Interest Payment Dates
Quarterly in arrear on each 28 January, 28 April, 28 July and 28 October during
the term of the Notes, commencing on 28 July 2023; and
on the date on which the Notes are repaid
First Optional Redemption Date 28 April 2028
Maturity Date 28 April 2033
Dates may change
The “Key dates for the Offer” (listed above) are indicative only and subject to change. Heartland may, in its absolute discretion, vary these
dates (including by opening or closing the Offer early and extending the Closing Time). If the Closing Time is extended, all subsequent
dates may also be extended. Any such changes will not affect the validity of any applications received.
Heartland reserves the right to cancel the Offer and the issue of the Notes.
Key risks
Investments in debt securities have risks. A key risk is that Heartland does not meet its commitments to repay you or pay you interest.
Section 6 of the LDD discusses the main factors that give rise to this risk.
Overview of the Notes
Issuer Heartland Bank Limited.
Description of the Debt
Securities
Unsecured subordinated notes.
Ranking in Liquidation
In a liquidation of Heartland, each Note gives the Holder the right to payment of an amount
equal to the Face Value plus all accrued but unpaid interest. The right of Holders to payment
of this amount will rank:
behind the claims of all depositors and other creditors of Heartland, except for the
claims and rights described below;
equally with the claims of other Holders and holders of any other securities and
obligations that rank equally with the Notes; and
ahead of the rights of Heartland 's shareholders and holders of any other securities
and obligations of Heartland that rank behind the Notes.
In a liquidation of Heartland, it is unlikely that there will be surplus assets available for the
liquidator to pay any amount to Holders in respect of the Notes.
Offer Amount
Up to NZ$75 million. Heartland reserves the right to accept oversubscriptions of up to an
additional NZ$50 million at its discretion.
Purpose
The Offer will raise Tier 2 Capital to help Heartland meet its regulatory capital requirements
and manage its capital position.
The proceeds of the Offer will be used for Heartland's general corporate purposes.
Regulatory Capital The Notes will be treated as Tier 2 Capital.
Credit Ratings
Senior Credit Rating of the
Issuer
Notes Credit Rating
Fitch Australia Pty Limited BBB (Stable) BB+
A credit rating is not a recommendation to buy, sell or hold the Notes or any securities
issued by Heartland. Ratings are subject to suspension, revision or withdrawal at any
time.
No Guarantee
The Notes are not guaranteed by any member of the Heartland Banking Group, Heartland
Group Holdings Limited (Heartland's parent company) or any other person.
No Public Pool
There will be no public pool for the Notes. All Notes will be reserved for subscription by
clients of the Joint Lead Managers, Primary Market Participants and other persons invited to
join the Bookbuild.
Repayment
Subject to an Early Redemption (see below), the Notes must be repaid by Heartland on the
Maturity Date (28 April 2033).
Amount that is Payable to
Holders if the Notes are Repaid
Holders will receive the Face Value of the Notes plus all accrued but unpaid interest on the
Notes when the Notes are repaid.
Early Redemption
Heartland may choose to repay:
all or some of the Notes early on the First Optional Redemption Date or on any
Interest Payment Date after that date; or
all (but not some) of the Notes early on any Interest Payment Date if a Tax Event or
a Regulatory Event has occurred.
Early Redemption is subject to certain conditions, including Heartland obtaining the Reserve
Bank’s prior written approval (which the Reserve Bank may not provide) and Heartland
satisfying the Solvency Condition.
Holders have no right to require early redemption, and Holders should not assume
that Heartland will choose to repay the Notes prior to the Maturity Date or that
Heartland will be able to satisfy the conditions that apply to Early Redemption.
Interest Rate
The interest rate will be a fixed rate for a period of 5 years, after which it will change to a
floating rate that resets at quarterly intervals.
The interest rate for the first 5 years until the First Optional Redemption Date (28 April 2028)
will be a fixed rate equal to the sum of the Swap Rate (a reference rate for a 5 year period)
on the Rate Set Date (21 April 2023) plus the Issue Margin, but in any case will be no less
than the minimum interest rate announced via NZX on or about the Opening Date.
The interest rate from (and including) the First Optional Redemption Date will be a floating
rate which will be reset quarterly to be equal to the sum of the applicable 3 Month Bank Bill
Rate (a benchmark interest rate for a 3 month period) plus the Issue Margin.
If the sum of the 3 Month Bank Bill Rate plus the Issue Margin is less than 0% per annum,
the floating rate will be deemed to be 0% per annum.
The initial interest rate and the Issue Margin will be determined by Heartland following the
Bookbuild on the Rate Set Date (21 April 2023), and will be announced by Heartland via NZX
on or about that date.
Each time the interest rate is reset after the First Optional Redemption Date, the new interest
rate will be announced by Heartland via NZX on or about the date it is reset.
Issue Margin
Heartland expects to announce an indicative Issue Margin range (which may be subject to
change) via NZX on or about the Opening Date.
The Issue Margin (which may be above, below or within the indicative Issue Margin range)
will be determined by Heartland in consultation with the Joint Lead Managers through the
Bookbuild. The Issue Margin will be announced by Heartland via NZX on or about the Rate
Set Date.
The Issue Margin will not change.
Swap Rate
The mid-market rate for an interest rate swap with a term of 5 years commencing on the
Issue Date, as calculated by the Arranger in consultation with Heartland, according to market
convention, with reference to Bloomberg Page ICNZ4 (or any successor page) on the Rate
Set Date, expressed as a percentage per annum, adjusted for quarterly payments and
rounded, if necessary, to the nearest 2 decimal places with 0.005 being rounded up.
3 Month Bank Bill Rate
In relation to an Interest Payment Date after the First Optional Redemption Date, the FRA
rate administered by the New Zealand Financial Benchmark Facility (NZFBF) (or any person
that takes over the administration of that rate) for bank bills having a term of, or of about, 3
months as displayed at or about 10.45am (New Zealand time) or such later time as Heartland
may determine on the previous Interest Payment Date on Bloomberg BKBM page 'GDCO
2805' (or any successor page) or if that rate is not displayed by 10.45am (New Zealand time)
or such later time as Heartland may determine on that date, the equivalent rate provided by
the NZFBF (or any person that takes over the administration of that rate) at or around that
time on that date, in each case expressed as a percentage per annum and rounded, if
necessary, to the nearest 4 decimal places with 0.00005% being rounded up.
Heartland is able to replace the 3 Month Bank Bill Rate with an alternative reference rate if
the 3 Month Bank Bill Rate becomes unavailable.
Calculation of Interest
Payments
Until the First Optional Redemption Date (28 April 2028) interest will be payable in equal
amounts on each Interest Payment Date.
After the First Optional Redemption Date the interest payable on each Interest Payment Date
will be calculated on the basis of the actual number of days from (and including) the previous
Interest Payment Date to (but excluding) the Interest Payment Date.
Solvency Condition
The payment of interest or principal in respect of a Note at any time before the Maturity Date
or the liquidation of Heartland is subject to the following conditions:
Heartland must be Solvent at the time the payment is due; and
Heartland must be able to pay the amount and remain Solvent immediately after
paying the amount.
The Solvency Condition does not apply to payments that are required to be made on the
Maturity Date or if Heartland is in liquidation.
No Event of Default for Failure
to Satisfy the Solvency
Condition or Due to Reserve
Bank
No Event of Default arises if Heartland fails to pay an amount on the Notes on account of not
satisfying the Solvency Condition or (in the case of early repayment only) the Reserve Bank
has not given its prior written approval to the repayment.
Unpaid Interest Accumulates
If interest is not paid on an Interest Payment Date because the Solvency Condition is not
satisfied, the unpaid interest will remain owing, will itself bear interest (at the same rate as the
Notes), and will be payable on the earlier of the next Business Day on which the Solvency
Condition is satisfied and the Maturity Date.
Events of Default
The Notes have very limited events of default, as described below:
Payment default: An event of default will occur if Heartland fails to pay any amount
due in respect of the Notes within 15 Business Days of its due date.
Commencement of liquidation: An event of default will occur on the
commencement of liquidation of Heartland.
Limited Enforcement Rights and
Rights in Liquidation of
Heartland
Holders' rights are limited if an event of default occurs, as described below:
If a payment default occurs, Holders may only bring proceedings:
to recover any amount then due and payable but unpaid on the Notes (subject to
satisfaction of the Solvency Condition if the payment of the unpaid amount was
subject to the Solvency Condition);
for specific performance of any other obligation in respect of the Notes; or
for the liquidation of Heartland.
In the case of the commencement of liquidation of Heartland, the Face Value of each Note
and any accrued but unpaid interest on the Notes will immediately become due and payable,
and Holders may claim in the liquidation for that amount (on a subordinated basis). It is
unlikely that a Holder will receive payment of any amount owing on its Notes in a liquidation.
No Restrictions on Issuing
Further Securities or Creating
Further Liabilities
There are no restrictions on Heartland issuing further securities or creating further liabilities
after the Notes have been issued that rank equally with, or in priority to, the Notes in a
liquidation of Heartland.
Heartland could therefore, at any time after the Issue Date, issue further securities or create
further liabilities that rank equally with or in priority to the Notes.
Business Days (for Interest
Payment Purposes)
A day that is not a Saturday or Sunday and on which commercial banks are open for general
business in Wellington and Auckland.
Business Day Convention
If an Interest Payment Date on or before the First Optional Redemption Date is not a
Business Day, Heartland will make payment on the next Business Day, and no adjustment
will be made to the amount of interest payable as a result of the delay in payment.
If an Interest Payment Date after the First Optional Redemption Date is not a Business Day,
then the Interest Payment Date will be the next Business Day, unless that day falls in the next
calendar month, in which case it will be the preceding Business Day, and, in either case, the
amount of interest payable will be adjusted to reflect the actual payment date.
Record Date (for Payment
Purposes)
In the case of:
a payment of interest, the date which is 10 days before the relevant Interest
Payment Date or, if that day is not a Business Day, the immediately preceding
Business Day; or
a payment of any other amount, a date determined by Heartland and notified to
NZX,
or in either case such other date as may be required by NZX.
Brokerage 0.50% on firm allocations plus 0.50% brokerage, payable by Heartland.
No Underwriting The Offer is not underwritten.
Minimum Subscription Amount NZ$5,000 and in multiples of NZ$1,000 thereafter.
Face Value / Issue Price NZ$1.00 per Note.
ISIN NZHBLD01T2L8
Quotation
Heartland intends to quote the Notes on the NZX Debt Market. NZX ticker code HBL1T2 has
been reserved for the Notes.
NZX is a licensed market operator, and the NZX Debt Market is a licensed market, under the
Financial Markets Conduct Act 2013.
Documents
LDD relating to the offer of Notes dated 11 April 2023.
Deed Poll and terms of the Notes.
Other documents and information are available on the online Disclose Register maintained
by the Companies Office at www.disclose-register.companiesoffice.govt.nz (offer number
OFR13495).
Governing Law New Zealand.
Approved Issuer Levy
Heartland intends to register the Notes for approved issuer levy (AIL) and, where it is eligible
to do so in respect of interest paid to a non-resident Holder that is subject to the non-resident
withholding tax rules (and unless otherwise elected by the Holder), to pay AIL in lieu of
deducting non-resident withholding tax. If the Notes qualify for the 0% rate of AIL, Heartland
intends to apply the 0% rate, otherwise it will apply AIL at the applicable rate. The amount of
any AIL paid will be deducted from payments to the relevant Holder.
Selling Restrictions
The LDD only constitutes an offer of Notes to investors in New Zealand and to certain
overseas institutional investors in accordance with the selling restrictions set out in the LDD.
Heartland has not taken and will not take any action that would permit a public or regulated
offering of the Notes, or possession or distribution of any offering material in respect of the
Notes, in any country or jurisdiction where action for that purpose is required (other than New
Zealand).
The Notes may only be offered for sale or sold in compliance with all applicable laws and
regulations in any jurisdiction in which they are offered, sold or delivered.
The LDD and any disclosure statement, information memorandum, prospectus, circular,
advertisement or other offering material in respect of the Notes may only be published,
delivered or distributed in compliance with all applicable laws and regulations (including those
of the country or jurisdiction in which the material is published, delivered or distributed).
Specific selling restrictions will apply to an initial offer of the Notes in Australia, the European
Union (excluding Austria), Hong Kong, Japan, Singapore, the United Kingdom and the United
States or to US Persons.
Arranger
Westpac Banking Corporation (ABN 33 007 457 141) (acting through its New Zealand
branch) (Westpac).
Joint Lead Managers
Bank of New Zealand, Craigs Investment Partners Limited, Forsyth Barr Limited and
Westpac.
Registrar Link Market Services Limited.
---
HEARTLAND
BANK
mlstcladtclalemetslal.@mlaaliccre
SIU] ole) ce llarslisremN(e)csm@)aicys
Joint Lead Managers
Heartland Bank Limited
Subordinated Notes Offer
Investor Presentation
11 April 2023
1
Joint Lead Managers
Important Information and Disclaimer
A limited disclosure document ("LDD") has been prepared in respect of the Offer. The LDD is available on the online Disclose Register maintained by the Companies Office at https://disclose-register.companiesoffice.govt.nz (offer number OFR 13495) or can
be obtained from the Joint Lead Managers or your usual financial advice provider.
Information
This presentation contains summary information about the Notes and Heartland and its activities that is current as at the date of this presentation. The information in this presentation does not purport to be complete nor does it contain all the information
which a prospective investor may require in evaluating a possible investment in the Notes. The information in this presentation has been obtained from sources believed to be reliable and accurate at the date of preparation and has been prepared with due
care and attention, but its accuracy, correctness, reasonableness and completeness cannot be guaranteed.
No person is under any obligation to update this presentation at any time after its release or to provide further information about Heartland.
Not financial product advice
The information in this presentation is general in nature and does not take account of your individual objectives, financial situation, needs or other circumstances. It does not constitute financial, investment, legal, tax, accounting or other advice or a
recommendation to purchase Notes.
You should carefully read and consider the LDD, consider the suitability of an investment in the Notes having regard to your individual risk profile for investments, investment objectives and personal circumstances (including financial and taxation issues) and
consult your financial, legal, tax and other professional advisers before deciding to invest in the Notes.
Investment risk
This investment is riskier than a bank deposit. The Notes are complex financial products that are not suitable for many investors. If you do not fully understand how the Notes work or the risks associated with them, you should not invest in them.
Restrictions on distribution
The LDD only constitutes an Offer to investors in New Zealand and to certain overseas institutional investors in accordance with the selling restrictions set out in the LDD.
Heartland has not taken and will not take any action that would permit a public or regulated offering of the Notes, or possession or distribution of any offering material in respect of the Notes, in any country or jurisdiction where action for that purpose is
required (other than New Zealand).
The Notes may only be offered for sale or sold in compliance with all applicable laws and regulations in any jurisdiction in which they are offered, sold or delivered.
The LDD and any disclosure statement, information memorandum, prospectus, circular, advertisement or other offering material in respect of the Notes may only be published, delivered or distributed in compliance with all applicable laws and regulations
(including those of the country or jurisdiction in which the material is published, delivered or distributed).
Specific selling restrictions will apply to an initial offer of the Notes in Australia, the European Union (excluding Austria), Hong Kong, Japan, Singapore, the United Kingdom and the United States or to US persons.
Disclaimer
To the maximum extent permitted by law, none of Heartland, Westpac Banking Corporation ABN 33 007 457 141 (acting through its New Zealand branch) (“Westpac”) as Arranger, or Westpac, Bank of New Zealand, Craigs Investment Partners Limited or
Forsyth Barr Limited as Joint Lead Managers, or their respective directors, officers, employees, agents or advisers, make any representation, recommendation or warranty, express or implied, regarding the accuracy, adequacy, reasonableness or
completeness of the information contained in this presentation, or in any further information that may at any time be supplied in connection with the Offer or accept responsibility or liability therefor or for any loss or damage howsoever occurring resulting
from the use of or reliance on this presentation by any person.
2
This presentation has been prepared by Heartland Bank Limited (“Heartland”) in relation to its offer ("Offer") of unsecured subordinated notes ("Notes") to New Zealand investors
and certain overseas institutional investors.
Financial data and non-GAAP financial information
All amounts are in New Zealand dollars unless otherwise indicated. Due to rounding, numbers within this presentation may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
This presentation includes certain financial measures that are "non-GAAP (generally accepted accounting practice) financial information“ on slide 15. Such financial information and financial measures (including underlying profit or loss, underlying return
on equity (ROE) and underlying cost to income ratio (CTI)) do not have standardised meanings prescribed under New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and therefore, may not be comparable to similarly titled
measures presented by other entities.
Financial data in this presentation is as at 31 December 2022 unless otherwise indicated. Any other financial information provided as at a date after 31 December 2022 has not been audited or reviewed by any independent registered public accounting
firm.
Credit rating
A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation.
Disclosure regarding forward-looking statements
This presentation may contain certain forward-looking statements with respect to the financial condition, results of or operations and business of Heartland. Forward-looking statements can generally be identified by the use of words such as 'project',
'foresee', 'plan', 'expect', 'aim', 'intend', 'anticipate', 'believe', 'estimate', 'may', 'should', 'will' or similar expressions.
Forward-looking statements in this presentation include statements regarding the timetable and Heartland’s strategies and future plans. Any indications of, or guidance or outlook on, future earnings or financial position or performance are also forward-
looking statements. All such forward-looking statements involve known and unknown risks, significant uncertainties, assumptions, contingencies, and other factors, many of which are outside the control of Heartland, which may cause the actual results or
performance of Heartland to be materially different from any future results or performance expressed or implied by such forward-looking statements.
Such forward-looking statements speak only as of the date of this presentation. Except as required by law or regulation, Heartland undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to
the date of this presentation or to update or keep current any of the information contained herein.
Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and performance) are based upon the best judgement of Heartland from the information available as of the date of this
presentation. A number of factors could cause actual results or performance to vary materially from the projections, including the risk factors set out in the LDD. Investors should consider the forward-looking statements in this presentation in light of those
risks and disclosures.
You are strongly cautioned not to place undue reliance on any forward-looking statements, particularly in light of the current economic climate.
Past performance
Past performance information provided in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) a promise, representation, warranty or guarantee as to the past, present or future performance of Heartland.
Important Information and Disclaimer (continued)
3
General
For the purposes of this "Important Information and Disclaimer" section, "presentation" means the slides, any oral presentation of the slides by Heartland, any question-and-answer session that follows that oral presentation, hard copies of this
presentation and any materials distributed at, or in connection with, that presentation.
The information and opinions contained in this presentation are provided as at the date of this presentation.
Capitalised terms used in this presentation have the same meaning as set out in the LDD, unless the context otherwise requires.
To the maximum extent permitted by law, the information contained in, or otherwise accessible through, the websites mentioned in this presentation do not form part of the presentation unless we specifically state that the information is incorporated by
reference thereby forming part of the presentation.
Important Information and Disclaimer (continued)
4
Contents
01
Offer highlightsPage 6 – 7
02
Heartland overviewPage 8 – 12
03
Financial informationPage 13 – 17
04
CapitalPage 18 – 20
05
Summary termsPage 21 – 24
06
Key datesPage 25
07
Contact detailsPage 26
08
AppendicesPage 27 - 28
5
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Offer
highlights
6
Offer highlights
IssuerHeartland Bank Limited (“Heartland”).
Description of the Debt
Securities
Unsecured subordinated notes (“Notes”).
Offer amountUp to NZ$75 million. Heartland reserves the right to accept oversubscriptions of up to an additional NZ$50 million at its discretion.
Face Value / Issue PriceNZ$1.00 per Note.
Purpose
The Offer will raise Tier 2 Capital to help Heartland meet its regulatory capital requirements and manage its capital position. The proceeds of the Offer will be
used for Heartland’s general corporate purposes.
Maturity Date28 April 2033.
Interest RateThe interest rate will be a fixed rate for a period of 5 years, after which it will change to a floating rate that resets at quarterly intervals.
Credit RatingThe Notes have a credit rating of BB+ by Fitch Australia Pty Limited.
QuotationHeartland intends to quote the Notes on the NZX Debt Market. NZX ticker code HBL1T2 has been reserved for the Notes.
No Public Pool
There is no public pool for the Notes. All Notes will be reserved for subscription by clients of the Joint Lead Managers, Primary Market Participants and other
persons invited to join the Bookbuild.
Selling RestrictionsThe offer of Notes will only be made to investors in New Zealand and to certain overseas institutional investors.
ArrangerWestpac Banking Corporation (ABN 33 007 457 141) (acting through its New Zealand branch) (“Westpac”).
Joint Lead ManagersBank of New Zealand, Craigs Investment Partners Limited, Forsyth Barr Limited and Westpac.
7
OVErVIEW
‘
micyclaurclale
Heartland
overview
8
Heartland background
•Heartland Bank Limited(Heartland) has been a registered bank in New Zealand since December 2012 and has a long history, with roots stretching back to 1875. Heartland focuses on ‘best or
only’ banking products in the household, business and rural sectors, providing customers with savings and deposit products, online home loans, reverse mortgages, business loans, car loans and
rural loans through scalable digital platforms. The Notes have a credit rating of BB+ from Fitch Australia Pty Limited (Fitch). Heartland has a long-term unsecured credit rating of BBB (stable)
from Fitch.
•Heartland is committed to delivering financial solutions through speed and simplicity, particularly via digital platforms which reduce the cost of onboarding and make it easier for customers to
open accounts or apply for funds when they need it.
•Heartland’s parent company isHeartland Group Holdings Limited, which is a financial services group with operations in New Zealand and Australia and is listed on the NZX Main Board and on
the ASX under a foreign exempt listing.
9
Strategic progress
Frictionless service
at the lowest cost
Core banking system upgradealmost
complete.
Ongoing development of new functionality
and digital platforms to enable increased self-
service.
Business as
usual growth
Heartland’s strategic vision is to provide best or only products via scalable digital platforms, achieved through the below objectives.
Acquisitions
Exploring acquisitions where there is a fit
with Heartland’s strategic vision and the
opportunity to add value, either as a
means of adding scale or technology.
Total gross receivables of $4.7bn as at 31
Dec 2022, as reported on in “Portfolio
breakdown”, slide 12.
10
1
Bas ed on bal ance s heet data from the RBNZ for the fi rs t quarter (Q1) of FY2023.
2
Awarded Jul y 2022.
Heartland experienced the highest growth
rate in retail deposits of all main and
domestic banks in NZ.
1
Heartland awarded Canstar NZ’s Bank of
the Year – Savings for fifth consecutive
year.
2
Expanded Online Home Loans criteria to
permit lending against terraced homes and
townhouses.
Introduced a Guaranteed Future Value
product across the Opel vehicle range.
Heartland Mobile Appusers up 46% from July
2022.
Calls per customer to Motor, Deposits and
Businessteams reduced by 7% from July to
December 2022.
Sustainability
Heartland consistently offered market leading
and competitive deposit rates, enabling New
Zealanders to grow their savings in a high cost
of living environment.
Developed a refix comparison calculator for
Online Home Loans, allowing potential
applicants to see how much could be saved by
refinancing with Heartland.
Lending to new generation vehicles
comprised 14% of all vehicle lending in
1H2023.
Undertook ANZSIC
1
code analysis to
understand Heartland’s exposure to
customers in high emitting industries, and
industries susceptible to governmental
regulations in NZ’s journey to carbon-zero by
2050.
Celebrated the diversity of
Heartland’s people through various events,
including Te Wiki o Te ReoMāori (Māori
Language Week), Diwali and several Pasifika
language weeks.
Heartland’s sustainability framework is built on the following three key pillars:
Environmental
conservation
Social
equity
Economic
prosperity
Launched a green vehicle rate in December
2022.
The Manawa Ako internship programme
welcomed 25 Māori and Pasifika interns in its
sixth intake.
11
1
Aus tral ian and New Zeal and Standard Indus trial Cl as sification (ANZSIC).
Portfolio breakdown
Motor FinanceReverse MortgagesOnline Home LoansPersonal LoansAsset Finance BusinessOpen for BusinessRural
Product
description
Loans to assist
customers to
purchase a motor
vehicle or boat,
secured over the
relevant asset.
Heartland reverse
mortgages enable older
home owners to
release some of the
equity in their home to
help them live a more
comfortable
retirement.
Residential mortgages
for purchasing
residential property or
refinancing an existing
residential mortgage.
Unsecured loans to
individuals.
Business loans available
to small to medium
businesses for a variety
of purposes, including
plant/equipment and
working capital.
Includes floorplan
lending to vehicle
retailers and wholesale
facilities to other
lenders.
Term loans available to
customers for multiple
purposes.
Rural loans which
include financing for
100% of stock
purchases,
refinancing/purchasing
of a sheep or beef farm
or dairy farm.
Finance
receivables
1,2
Net operating
income
1,2
1
As at 31 December 2022.
2
Thi s i s refl ecti ve of Heartl and Bank recei vabl es onl y.
HouseholdRuralBusiness
12
$1.46bn$809m$302m
$55m
$676m$676m
31%
17%
6%
1%
14%
13%
3%14%
$596m$133m
$32.7m$20.5m$2.1m$2.9m
$14.9m
$15.8m$16.9m$6.7m
=
2
CG 4 —_—
_
E
Financial
information
13
1H201H211H221H23
Net interest margin (NIM)4.52%4.53%4.66%4.15%
Cost to income ratio (CTI)43.54%51.33%42.95%46.41%
Impairment expense ratio0.48%0.24%0.42%0.39%
Return on equity (ROE)12.02%10.59%12.26%10.45%
Financial performance (reported)
NZ$m1H201H211H221H23
Net Operating Income (NOI)102104112114
Operating Expenses (OPEX)44534853
Impairment Expense9599
Net Profit Before Tax (NPBT)49465552
Tax Expense13131415
Net Profit After Tax (NPAT)36334137
Heartland Income Statement extract
Heartland key financial metrics
Heartland reported NPAT
14
36
33
41
37
25
38
55
-
10
20
30
40
50
60
70
80
90
100
FY20FY21FY22FY23
N
Z
$
m
H1 H2
1H201H211H221H23
Net interest margin4.52%4.53%4.66%4.15%
Cost to income ratio42.99%46.79%42.72%45.13%
Impairment expense ratio0.48%0.24%0.42%0.39%
Return on equity11.93%11.65%12.02%11.14%
Financial performance (underlying)
NZ$m1H201H211H221H23
Net Operating Income101104112118
Operating Expenses43494853
Impairment Expense9599
Net Profit Before Tax48515656
Tax Expense13141616
Net Profit After Tax35364040
Heartland Income Statement measures
Heartland key financial metrics
Heartland underlying NPAT
15
35
36
40
40
31
38
43
-
10
20
30
40
50
60
70
80
90
100
FY20FY21FY22FY23
N
Z
$
m
H1 H2
The financial information on this slide is non-GAAP financial information. Non-GAAP financial information is provided as a supplementary measure for readers and is used internally by management to assess Heartland’s performance alongside NZ GAAP
reported measures, where one-offs, both positive and negative, can make it difficult to compare profits between years. However, these do not have standardised meanings and should not be viewed in isolation nor considered a substitute for measures
reported in accordance with NZ GAAP, which are set out on slide 14. Non-GAAP financial information has not been subject to review by PricewaterhouseCoopers, Heartland’s external auditor.
A reconciliation to GAAP financial information is set out in Appendix 1.
Financial position
(NZ$m)1H201H211H221H23
Liquid Assets453582469566
Net Finance Receivables3,6873,6654,1194,661
Other Assets¹122111115182
Total Assets4,2624,3584,7035,409
Retail Deposits3,2443,2713,3374,078
Other Borrowings385390622519
Total Funding3,6293,6613,9594,596
Other Liabilities²59646190
Equity574634683723
Total Equity & Liabilities4,2624,3584,7035,409
Heartland Balance Sheet extractHeartland lending mix
16
30%
32%32%
31%
16%
17%
16%
17%
0%
1%
5%
6%
6%
4%
1%
1%
31%
31%
31%
30%
17%
15%
14%
14%
1H201H211H221H23
Motor vehicleReverse mortgagesResidential mortgagesPersonal loansBusiness³Rural
1
Incl udes operati ng l eas e vehi cl es , ri ght of us e as s ets , i ntangi bl e as s ets , amounts due from rel ated parti es , deferred tax as s et.
2
Incl udes l eas e l i abiliti es , tax l iabilities , deri vati ve fi nancial i nstruments , amounts due to rel ated parti es , trade and other payabl es .
3
As per ‘Bus i nes s ’ breakdown on s l i de 12.
Funding overview
Heartland funding sources as at 31 Dec 2022Amount (NZ$)Maturity
Deposits
Comprised of $825m in a notice saver product, $807m of callable deposits, $2,445m of term deposits
$4,078m-
Retail Bond
$120m12-Apr-24
Heartland Auto Receivables Warehouse Trust 2018-1
Heartland’s auto securitisation warehouse with a facility limit of $400m
$191m29-Aug-24
Commercial Paper
$207m-
17
During the six months ended 31 December 2022, Heartland borrowings increased by $249.7 million (5.7%) to $4,596.3 million.
•Deposits grew $480.5 million (13.4%) to $4,077.7 million, driven by competitive pricing on targeted products, including Heartland’s Notice Saver offerings which both received Canstar New
Zealand recognition in the six months ended 31 December 2022.¹
•In the three months ended 30 September 2022, Heartland experienced the highest growth rate in retail deposits of all main and domestic banks in NZ.²
•Other borrowings decreased by $230.8 million (30.8%), largely due to the maturity of $150 million retail bond, as well as the amount drawn down in Heartland’s committed auto warehouse
facility decreasing by $76.6 million.
1
Awarded Jul y 2022.
2
Bas ed on bal ance s heet data from the RBNZ.
Capital
Capital
18
Capital management
Reserve Bank of New Zealand (RBNZ) capital adequacy ratiosHeartland Bank regulatory capital ratios (%)
Heartland Bank regulatory capital (NZ$m)
Regulatory
Minimum Dec
22
Prudential
capital buffer
(PCB)
Regulatory
Minimum (inc.
PCB) Dec 22
Heartland
Bank
Dec 22
Common Equity
Tier 1 (CET1)
capital ratio
4.5%2.5%7.0%13.2%
Tier 1 capital ratio6.0%2.5%8.5%13.2%
Total capital ratio8.0%2.5%10.5%13.2%
The information on this slide is based on the information in Heartland’s disclosure statement for each period. It is
illustrative only and does not guarantee or forecast the future regulatory capital position for Heartland. For
example, the information does not take into account the $30m dividend paid by Heartland to its parent company,
Heartland Group Holdings Limited, on 21 March 2023.
13.49
12.67
13.88
13.49
13.15
FY19FY20FY21FY221H23
CET1
528.8
531.0
575.1
626.1
629.6
FY19FY20FY21FY221H23
CET1
19
•Heartland’s regulatory capital ratio remained well in excess of regulatory minimums at
13.15% as at 31 December 2022 (30 June 2022: 13.49%) following the removal of any bank
dividend restrictions by the RBNZ on 1 July 2022. Heartland continues to operate
significantly in excess of regulatory minimums and is well positioned to meet the RBNZ’s
future higher capital requirements.
•The RBNZ future capital requirements are for a CET1 capital ratio of 11.50% and a total
capital ratio of 16.00% by 1 July 2028.
Future RBNZ capital requirements
Regulatory minimum capital ratios (%)RBNZ regulatory capital requirements
•In December 2019, RBNZ announced its capital review decisions, which included a
requirement for all of New Zealand’s banks to increase their capital requirements. For all
banks except domestic systemically important banks, this results in an increase in total
capital to be held from 10.5% to 16% over the seven years to July 2028.
•These incremental requirements and the associated timeline are shown in the graph to
the left.
1
Ti er 1 capi tal can compri se both CET1 and Addi ti onal Ti er 1 capi tal . However, Addi ti onal Ti er 1 capi tal can compri se no more than 2.5% of the Ti er 1 capi tal ratio
7.07.0
8.0
9.0
10.0
11.5
1.5
2.5
2.5
2.5
2.5
2.5
2.0
2.0
2.0
2.0
2.0
2.0
Mar-23Jul-24Jul-25Jul-26Jul-27Jul-28
CET1¹Additional Tier 1¹Tier 2
20
elaalaarelay
terms
1
Summary
terms
21
Summary terms
Description of the Debt
Securities
Unsecured subordinated notes.
Ranking in Liquidation
In a liquidation of Heartland, the claims of Holders will rank:
•behind the claims of all depositors and holders of other senior debt obligations;
•equally with the claims of other Holders and any other securities and obligations of Heartland that rank equally with the Notes; and
•ahead of the rights of Heartland's shareholders and holders of any other securities and obligations of Heartland that rank behind the Notes.
No Guarantee
The Notes are not guaranteed by any member of the Heartland Banking Group, Heartland Group Holdings Limited (Heartland's parent company) or any other person.
Repayment
The Notes must be repaid by Heartland on the Maturity Date (28 April 2033). Heartland may choose to repay:
•all or some of the Notes early on the First Optional Redemption Date (being 28 April 2028) or on any Interest Payment Date after that date; or
•all (but not some) of the Notes early on any Interest Payment Date if a Tax Event or a Regulatory Event has occurred.
Holders have no right to require early redemption, and Holders should not assume that Heartland will elect to repay the Notes before the Maturity Date.
Early redemption is subject to certain conditions, including Heartland obtaining the RBNZ’s prior written approval (which the RBNZ may not provide) and Heartland
satisfying the Solvency Condition.
Interest Payments
Quarterly.
Interest Rate
The interest rate will be a fixed rate for a period of 5 years, after which it will change to a floating rate that resets at quarterly intervals.
•The interest rate for the first 5 years until the First Optional Redemption Date (28 April 2028) will be a fixed rate equal to the sum of the Swap Rate (a reference rate
for a 5 year period) on the Rate Set Date (21 April 2023) plus the Issue Margin, but in any case will be no less than the minimum interest rate announced via NZX on
or about the Opening Date.
•The interest rate from (and including) the First Optional Redemption Date will be a floating rate which will be reset quarterly to be equal to the sum of the
applicable 3 Month Bank Bill Rate (a benchmark interest rate for a 3 month period) plus the Issue Margin.
22
Issue Margin
The Issue Margin is the percentage rate per annum determined by Heartland in consultation with the Joint Lead Managers through the Bookbuild. Heartland expects
to announce an indicative Issue Margin range (which may be subject to change) via NZX on or about the Opening Date. The actual Issue Margin (which may be above,
below or within the announced indicative Issue Margin range) will be announced by Heartland via NZX on or about the Rate Set Date.
The Issue Margin will not change.
Minimum subscription
amount
NZ$5,000, and in multiples of NZ$1,000 thereafter.
Brokerage
0.50% on firm allocations plus 0.50% brokerage, payable by Heartland.
Summary terms (continued)
23
Summary terms (continued)
•The payment of interest on each Interest Payment Date (other than on the Maturity Date
(28 April 2033)) is conditional on Heartland satisfying the Solvency Condition.
•The Solvency Condition will be satisfied if Heartland is Solvent¹at the time the payment is
due and Heartland is able to pay the amount and remain Solvent immediately after paying
the amount.
•The Solvency Condition does not apply to payments that are required to be made on the
Maturity Date or if Heartland is in liquidation.
•If interest is not paid on an Interest Payment Date because the Solvency Condition is not
satisfied, the unpaid interest will remain owing, will itself bear interest (at the same rate
as the Notes), and will be payable on the earlier of the next Business Day on which the
Solvency Condition is satisfied and the Maturity Date.
•The Notes have very limited events of default, as described below:
•Payment default: an event of default will occur if Heartland fails to pay any amount
due in respect of the Notes within 15 Business Days of its due date.
•Commencement of liquidation: an event of default will occur on the
commencement of liquidation of Heartland.
•To the extent that a payment on the Notes is not required to be made because the
Solvency Condition is not satisfied or (in the case of early repayment only) the Reserve
Bank has not given its prior written approval to the repayment, the amount is not due
and payable and a payment default cannot occur.
•If a payment default occurs, the Note holder may only bring proceedings:
•to recover any amount then due and payable but unpaid on the Notes (subject to
satisfaction of the Solvency Condition if the payment of the unpaid amount was
subject to the Solvency Condition);
•for specific performance of any other obligation in respect of the Notes; or
•for the liquidation of Heartland.
•In addition to the rights listed above, in the case of the commencement of liquidation of
Heartland, the Face Value of each Note and any accrued but unpaid interest on the
Notes will immediately become due and payable, and a Holder may claim in the
liquidation for that amount. In this circumstance, a Holder’s claim will be subordinated
and it is unlikely that a Holder will receive payment of any amount owing on the Notes.
Interest paymentsEvents of Default
¹ “Sol vent” means s ati s fying the s ol vency tes t contai ned i n s ecti on 4 of the Compani es Act 1993.
24
25
Key dates for the OfferDate
Limited Disclosure Document lodgement11 April 2023
Opening Date and announcement date of minimum interest rate and indicative Issue Margin range17 April 2023
Closing Time11.00am on 21 April 2023
Rate Set Date21 April 2023
Issue Date / allotment date
28 April 2023
Expected date of initial quotation and trading of the Notes on the NZX Debt Market
1 May 2023
Key dates
Key dates for the NotesDate
First Interest Payment Date28 July 2023
Interest Payment Dates
•Quarterly in arrear on each 28 January, 28 April, 28 July
and 28 October during the term of the Notes, commencing
on 28 July 2023; and
•on the date on which the Notes are repaid
First Optional Redemption Date28 April 2028
Maturity Date28 April 2033
Contact details
Andy Wood
Chief Risk Officer – Heartland Bank Limited
Andy.Wood@heartland.co.nz
Jeffery Rosie
Financial Controller – Heartland Bank Limited
Jeffery.Rosie@heartland.co.nz
Leanne Lazarus
Chief Executive Officer – Heartland Bank Limited
Leanne.Lazarus@heartland.co.nz
26
Additional information (including a copy of the
LDD) can be found at:
http://www.heartland.co.nz/unsecured-
subordinated-notes-offer
27
Appendices
28
Appendix 1: Financial performance - reconciliation
$m1H201H211H221H23
Reported NOI102.2 103.7 112.1 114.5
Less:
Upfront reverse mortgage fees1.6 ---
Net fair value gain/loss on investments--(0.3)-
Hedge Accounting Impacts---(3.6)
Underlying NOI100.6 103.7 112.4 118.1
Reported OPEX44.5 53.3 48.2 53.1
Less:
Upfront reverse mortgage costs1.2 ---
Aged items provisions and legacy accruals---(0.2)
Software write offs-4.3 --
Other non-recurring items0.1 0.4 0.1 0.0
Underlying OPEX43.2 48.5 48.0 53.3
Reported impairment expense9.0 4.5 8.5 9.2
Underlying impairment expense9.0 4.5 8.5 9.2
Reported NPBT48.7 46.0 55.4 52.2
Less:
Total adjustments (as above)0.4 (4.7)(0.4)(3.4)
Underlying NPBT48.4 50.7 55.9 55.6
Reported NPAT35.5 33.0 41.0 37.5
Less:
Post-tax impact of one-offs0.3 (3.4)0.8 (2.5)
Underlying NPAT35.3 36.4 40.2 40.0
Reported NIM4.5%4.5%4.7%4.2%
Underlying NIM4.5%4.5%4.7%4.2%
Reported CTI43.5%51.3%42.9%46.4%
Underlying CTI43.0%46.8%42.7%45.1%
Reported impairment expense ratio0.5%0.2%0.4%0.4%
Underlying impairment expense ratio0.5%0.2%0.4%0.4%
Reported ROE12.0%10.6%12.3%10.4%
Underlying ROE11.9%11.7%12.0%11.1%
an les
ok > ar
>
Z
0
Thank you
29
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.