Frequently Asked Questions:

 

WHAT ARE MAHOGANY NOTES?
Mahogany Notes Series I and Series II ("Notes") are issues of debt securities which are known as Notes.  By purchasing the Notes, Investors are lending money to Mahogany.  Mahogany in turn agrees to repay the money invested ("Capital"), and to pay periodic interest ("Interest") on it, in accordance with the terms of the Notes.  The terms of the Notes link the amount of the required payments of Capital and Interest to the financial strength of groups of entities, which may include companies and governments ("Entities").

The Notes are classifed as unsecured notes under section 283BH of the Corporations Act.

 WHAT IS STANDARD AND POOR'S CREDIT RATING?
The repayment of Capital on Mahogany Notes is given a rating by Standard & Poor's, an independent, internationally recognised rating agency.

A Standard & Poor's credit rating is a current assessment of an issuer's ability to make full and timely payments on its financial obligations.  Long-term ratings range from Standard & Poor's highest category 'AAA', to the lowest, 'D' category.  Ratings in the 'AAA', 'AA', 'A', and "A" categories are regarded as investment grade.

Ratings in the 'BB', 'B', 'CCC', 'CC', 'C' categories are regarded as having significant speculative characteristics.  A rating of 'D' denotes a payment default on financial commitments.

Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities.  Standard & Poor's (Australia) Pty. Ltd. does not hold an Australian financial services license under the Corporations Act 2001.  Any rating and the information contained in any research report published by Standard & Poor's is of a general nature.  It has been prepared without taking into account any recipient's particular financial needs, circumstances, and objectives.  Therefore, a recipient should assess the appropriateness of such information to themseleves before making an investment decision based on this information.

WHY ARE CREDIT RATINGS IMPORTANT?
Credit ratings are an important tool for enabling Investors to assess the risk of a Default by Entities in the Portfolios.  Investors, in deciding whether to invest in the Notes will need to assess the likelihood of a Default by Entities in the Portfolios and understand how a Default will impact on the repayment of Capital and payment of Interest.  The information below is designed to assist an Investor in assessing the likelihood of entities in each of the rating categories Defaulting.

Credit ratings are not a recommendation to purchase, sell or hold any security.  Credit ratings are based on information provided to Standard & Poor's by entities and other reliable sources.

WHAT IS A NOTE?
A Note is a type of debt security. 

Unlike traditional debt securities where the payment of principal and interest is dependent upon the performance of a single entitiy, in a Note these payments are referenced to the financial strength of a number of entities.  These entities, when grouped together, are called a portfolio.  Similarly, while the risk and return characteristics of a traditional debt security will be driven by factors related to a single entity, in a Note these factors will be related to the group of entities comprising the portfolio and the particular structure and terms of the Note.

Investors in a Note will typically have principal and/or interest payable reduced if defaults of entities within a portfolio exceed a certain number.  However, an investor in a Note does not lend money directly or indirectly to these portfolio entities.  This is a key difference from traditional debt securities, where an investor lends directly to a single entity and, in the event of a default, will be exposed to the administration, wind-up or restructuring process for that entity that will seek to recover proceeds for creditors.

The amount that investors in a traditional debt security might receive after a default will be largely dependent upon the proceeds from the sale of assets after allowing for payment of any other debt and creditor obligations.  Debt investors will therefore benefit from the support provided from the net assets or equity that an entity has at the time of the default.  In a Note, this is similar to the function that credit support provides.  This credit support is represented by the number of defaults a Note can withstand before the investors' principal or interest is affected.

There are many different types of CDOs.  Some offer less risk of financial loss than others.  The main difference between CDOs is the selection of portfolio entities and the amount of credit support available.  Notably, there can be crossover between different CDOs, with the same or similar types of entities being included in different CDOs portfolios.  Additionally, varying amounts of credit support can require a different number of defaults before investors suffer any loss or staged losses.

Care needs to be taken in considering any investment in a Note to understand its risks and the potential return offered in exchange.

WHAT CAN AFFECT THE PERFORMANCE OF THE NOTE?
Each Note may have different defaults which are applicable to the portfolio entities.  A Default for the purpose of working out whether the Interest or Capital on the Notes is affected can happen when an Entity in a Portfolio:

• becomes bankrupt; or
• fails to repay money that it has borrowed; or
• restructures its borrowings because its financial strength has weakened significantly; or
• defaults on its borrowings with the result that the borrowings become payable early; or
• rejects, challenges or refuses to pay on time any of its borrowings.

A fall in the share price or a downgrading of credit rating of an Entity does not constitute a Default (although it could be caused by a Default).

Additionally, there is a risk that Investors will not be repaid all of the Capital at the end of the Term or the maximum rate of Interest over the Term.  There is also a risk that the Capital will not be repaid, although this risk is significantly less than the risk that Investors will not receive the maximum rate of Interest over the Term.   

WHO PROVIDES SERVICES TO MAHOGANY?
The following parties provide services to Mahogany in connection with the Note Issues:

• Lehman Brothers Australia Limited  -  Lehman Brothers is the Lead Manager of the Offer.  Lehman Brothers provides expertise and comprehensive financial advisory and capital raising services to corporations and governments worldwide.

• Perpetual Limited - In its capacities as both note trustee and security trustee, Perpetual can enforce Investors' rights as holders of the Notes, and holds the security over the Saphir Notes for the secured creditors of Mahogany, which includes itself and the Investors.  Perpetual also undertakes certain cash management and administration functions for Mahogany.
  
• Link Market Services -  Link is the registrar for the Notes and it maintains the register which sets out who are the investors in the Notes.
  
• JP Morgan Chase Bank, London Branch  -  JP Morgan holds the Saphir Notes purchased by Mahogany as custodian on behalf of Mahogany.
  
• Standard & Poor's  -  In its capacity as an independent internationally recognised rating agency Standard & Poor's assigns a rating to the Capital.

WHO SELECTS THE UNDERLYING PORTFOLIOS?
The Portfolios were selected for Mahogany by Lehman Brothers, as part of Lehman Brothers' role as Lead Manager to the Offer.  Lehman Brothers has not, and does not, provide any risk management or other financial service to any Investors in connection with the selection of the Portfolio and Investors should not assume that Lehman Brothers has taken into account the interests of financial position of any Investor in making its selection.  Mahogany and Lehman Brothers do not guarantee the performance of Portfolios or any of the Entities comprised in them.  Neither Mahogany nor any Investor has any recourse against Lehman Brothers in connection with Lehman Brothers' selection of the Portfolios, nor with any changes which may be made to the Portfolios.