Corporate governance

Management arrangements summary

Maquarie Atlas Roads Group (MQA) is a stapled structure consisting of:

  • Macquarie Atlas Roads Limited (MARL) (an Australian public company); and
  • Macquarie Atlas Roads International Limited (MARIL) (an exempted mutual fund company incorporated in Bermuda).

MQA owns and manages interests in the M6 Toll, APRR, Dulles Greenway, Chicago Skyway and Indiana Toll Road. In addition, MQA holds investments in the South Bay Expressway, Warnow Tunnel and Transtoll. These three other businesses are not considered material to MQA's portfolio.

The MARL Shares and MARIL Shares which together comprise a MQA Security are each linked together and cannot be traded separately. Macquarie Capital Funds Advisory Services Pty Limited (MCFAS) is the manager of MARL and advisor of MARIL.

Macquarie Atlas Roads structure

Structure diagram

MQA consists of two entities:
Entity Type of Entity Asset Source of Income
MARL Australian public company
  • Chicago Skyway
  • Indiana Toll Road
  • Dulles Greenway1
  • Transtoll
 MARL will derive its income primarily from returns from its investments in the MQA Portfolio
MARIL Bermudian exempted mutual fund company
  • M6 Toll
  • APRR
  • Dulles Greenway2
  • South Bay Expressway
  • Warnow Tunnel
 MARIL will derive its income primarily from returns from its investments in the MQA Portfolio
  1. holds a 6.7% shareholding.
  2. holds whole subordinated loans.

The following is a high level summary of the MQA Management Agreements addressing the disclosure recommended in ASX Guidance Note 26.

Parties

MARL and Macquarie Capital Funds Advisory Services Pty Ltd (MCFAS) to the MARL Management Agreement

MARIL and MCFAS to the MARIL Advisory Agreement

  
Investment mandate

The investment policy is to invest in infrastructure assets in OECD and OECD equivalent countries; and non-infrastructure assets where ancillary to a major infrastructure investment or acquisitions but with focus on tollroad investments, both greenfield and mature.

The investment policy may be varied from time to time on reasonable notice to MQA Securityholders.

 MQA Management Agreements clause 3.3
Services

Subject to the instruction and supervision of the relevant MQA Board, MCFAS is responsible to MARL and MARIL for:

  • advice on any proposed investment or divestment;
  • if the MARL Board and MARIL approve an investment, acquisition and management the investment on behalf of MARL and MARIL;
  • provision of Macquarie executives as nominees of MARL and MARIL to act as directors of subsidiary entities that hold investments, and where appropriate, making recommendations to the MQA Boards to appoint non-Macquarie nominees to these boards;
  • capital management and financial management recommendations;
  • recommendations to the MQA Boards in respect of various matters (including but not limited to changes to the MARL Constitution and MARIL Bye-Laws, any capital reductions, appointment and dismissal of staff and consultants, and the payment of dividends and interim dividends);
  • general fund administration including company secretarial services subject to outsourcing company secretarial services in Bermuda to Butterfield Fulcrum Group Limited;
  • asset valuations;
  • assistance with financial reporting and budgets board reporting in connection with matters on which it provides advice; assistance with litigation management;
  • investor communications and meetings; and
  • provision of suitably qualified personnel to perform the CEO, and CFO roles for MQA and the company secretary role for MARL.
 MQA Management Agreements clause 3
Term

No fixed term or until MCFAS is removed or resigns.

 MQA Management Agreements clause 11.1
Extension or removal

There are no extension or renewal provisions in the MARL Management Agreement and MARIL Advisory Agreement.

 MQA Management Agreements clause 11
Termination

The appointment of MCFAS will automatically terminate on a MQA Securityholder vote following the commencement date. The resolution must be passed by more than 50% of votes cast at a meeting by MQA Securityholders entitled to vote to terminate the MARL Management Agreement and MARIL Advisory Agreement. MCFAS and its associates (including Macquarie) may vote their securities on the resolution.

 MQA Management Agreements clause 11.3(b)

MCFAS can also be removed for cause being where MCFAS is in liquidation, ceases to carry on business, lacks the appropriate licence or authorisation, or commits a material breach which cannot be remedied.

 MQA Management Agreements clause 11.3(a)

MCFAS may resign by giving not less than 90 days written notice.

 MQA Management Agreements 11.2
 

Where the agreement terminates, all directors, executives, employees, representatives, assignees and delegates of MCFAS and its associates (including Macquarie) will cease to work under the agreement at the date of termination or at any other time determined by MQA.

 MQA Management Agreements 11.3(c)

Base fees and performance fees accrued to the date of termination are payable.

 MQA Management Agreements 8.1(d), 8.2(b)
Fees
Base fee

Payable quarterly.

The parties agree that MCFAS and MARL may agree from time to time to a base fee which is less than the amount determined above. At the commencement date for the MQA Management Agreement, MCFAS and MARL have agreed to a base fee calculated as follows:

  • 2.00% per annum of the Market Value of MQA at the end of each Calendar Quarter up to $A1 billion or less; plus
  • 1.25% per annum of the Market Value of MQA at the end of each Calendar Quarter in excess of $A1 billion but less than or equal to A$3 billion; plus
  • 1.00% per annum of the Market Value of MQA at the end of each Calendar Quarter in excess of $A3 billion.

“Market Value” means the aggregate of the market value of the MQA Securities calculated on the basis of the average number of MQA Securities in issue during the last 10 trading days of the ASX in the relevant calendar quarter multiplied by the VWAP of all MQA Securities over those 10 trading days.

MCFAS and its associates (including Macquarie) may, where the non-executive directors of MARL and MARIL so determine, apply the base fee in subscription for MQA Securities. The price of the MQA Securities is the VWAP of the MQA Securities traded on ASX during the 10 trading days up to and including the quarter end date.

 MQA Management Agreements clause 8.1
 
Performance Fee

A performance fee is payable at 30 June each year in the event that MQA Securities outperform the Benchmark Return (based on the S&P/ASX 300 Industrials Accumulation Index) in the financial year having made up for underperformance in previous years. Any underperformance deficit from prior periods must be made up before future performance fees can be earned.

Performance fee = 15% of the dollar amount of out performance and is payable in three equal annual instalments. The second and third instalments are only paid if MQA continues to outperform the index on a cumulative basis over the two and three year period. The performance fee to be calculated in respect of any given financial year means:

  • subject to paragraph 3 below, 15% of the amount (if any) by which the Annual Return for the financial year exceeds the Benchmark Return of the financial year; or
  • nil if the Annual Return for the financial year does not exceed the Benchmark Return for the financial year; but
  • if the Annual Return in any prior financial year is less than the Benchmark Return for that financial year the deficit is to be carried forward on a cumulative basis until offset on a dollar for dollar basis against a surplus or surpluses of the Annual Return over the Benchmark Return in any succeeding financial year or financial years. MCFAS must allocate any deficit between MARL and MARIL based on the net assets of the companies (adjusted for the net market value of its assets).
 MQA Management Agreements 8.2
Annual Return means:

AR = A x B - C / C

Where:

AR = the Annual Return for the financial year;

A = in respect of each financial year is the average number of MQA Securities on issue during the last ten ASX trading days in the previous financial year multiplied by the VWAP of all MQA Securities traded on the ASX during that ten trading days period or in the case of the initial financial year using the thirty trading days following Listing for the calculations;

B = the average of the daily closing accumulation indices for the MQA Securities over the last ten trading days of the financial year as calculated by a person reasonably approved or selected by MCFAS and reported by Bloomberg;

C = the average of the daily closing accumulation indices for the MQA Securities over the last ten trading days of the previous financial year as calculated by a person reasonably approved or selected by MCFAS and reported by Bloomberg, or in the case of the initial financial year over the thirty trading days following Listing.

Benchmark Return means:

BR = X x Y - Z / Z

Where:

BR = the Benchmark Return for the financial year;

X = in respect of each financial year is the average number of MQA Securities (as used in the determination of “A” for the purposes of determining the Annual Return for the financial year) on issue during the last ten ASX trading days in the previous financial year multiplied by the VWAP of all MQA Securities (as used in the determination of “A” for the purposes of determining the Annual Return for the financial year) traded on the ASX during that ten trading days period or in the case of the initial financial year using the thirty trading days following Listing for the calculations;

Y = the average of the daily closing S&P/ASX 300 Industrials Accumulation Indices over the last ten trading days of the financial year as reported by Bloomberg;

Z = the average of the daily closing S&P/ASX 300 Industrials Accumulation Indices over the last ten trading days of the previous financial year or in the case of the initial financial year, the thirty trading days following Listing as reported by Bloomberg.

If MCFAS’s appointment is terminated, any future second and third performance fee instalments will be crystallised and paid on termination.

MCFAS and its associates (including Macquarie) may, where the non-executive directors of MARL and MARIL so determine, apply the performance fee in subscription for MQA Securities. The price of the MQA Securities is the VWAP of the MQA Securities traded on ASX during the last 10 trading days of that financial year. The same base fee and performance fee provisions apply for the MARIL Advisory Agreement.

 MQA Management Agreements 1.1
Apportionment of fees

MCFAS acknowledges that in respect of the performance fee that are earned under the MQA Management Agreements for the relevant period while Stapling applies:

  • the amount calculated under each of MCFAS Management Agreements are representative of the aggregate fees payable to MCFAS in respect of MQA; and
  • MCFAS has absolute discretion as to the allocation of such fees.

Unless agreed in writing to the contrary by MARL, MARIL and MCFAS, the allocation of the base fee and the performance fee between MARL and MARIL is to be at the ratio of that amount of the aggregate net assets (adjusted for the net market value of its investments) of MARL (excluding the MQA group) at the end of the relevant period bears to the amount of the aggregate net assets of the MQA group (adjusted for the net market value of its investments) at the end of the relevant period on the basis that in respect of the performance fee, the allocation will apply for each of the three instalments in the same ratio.

 MQA Management Agreements clause 8.4 and Schedule 2
Expenses

MCFAS is entitled to be reimbursed for expenses incurred in relation to the proper performance of its duties.

Expense reimbursement does not include administration costs such as premises, staff and facilities or any costs, commissions, charges, fees, expenses and taxes arising as a result of any gross negligence, fraud, wilful misconduct or dishonesty by MCFAS or any officer, employee, delegate, agent or contractor of MCFAS.

 MQA Management Agreements clause 9
Exclusivity

MCFAS is not engaged by MQA on an exclusive basis, and MARL and MARIL can appoint additional managers or advisors.

 MQA Management Agreements clause 4.5

MCFAS may from time to time perform services for itself and other parties the same as or similar to services performed under the MQA Management Agreements.

 MQA Management Agreements clause 4.7

MCFAS, and its associates have no obligation to provide investment opportunities and MARL and MARIL has no obligation to accept any investment opportunities. MARL and MARIL will not have any priority in respect of investment opportunities sourced by MCFAS and its associates.

 MQA Management Agreements clause 4.9
Discretions

The advisory mandate for MARL and MARIL is non-discretionary. All significant investment/divestment and operational decisions are made by the MARL Board and MARIL Board based on recommendations from MCFAS. The MQA Boards are not obliged to accept the recommendations of MCFAS.

 MQA Management Agreements clause 4.1
Related Party Protocols

MQA has adopted a detailed related party protocol covering transactions with and services provided by Macquarie Group companies and managed vehicles.

All related party transactions or services must be on arm’s length terms and approved by the MQA independent directors only.

Asset acquisition or sale transactions with related parties for 5% or greater of fund value are supported by an independent valuation.

Mandates for the provision of services to MQA or their controlled businesses are subject to third party independent review unless the independent directors determine otherwise on the basis of appropriate market information or practice.

MQA independent directors have put in place a panel of reviewers (which does not include the MQA auditor) and the reviewer for a particular service or transaction is usually chosen by them on a rotational basis.

Swap and foreign exchange transactions with Macquarie Group companies solely for hedging purposes are given standing approval if certain conditions are met.

Significant volume securities transactions with a Macquarie Group broker require independent director approval.

Fees paid or payable by MQA group entities for related party services will be disclosed in the MQA financial statements.

 MQA Management Agreements clause 7.1
Change of Control

A party may not assign any of its rights and obligations under the MQA Management Agreements without the prior written consent of the other party except to an associate in the case of MCFAS provided MCFAS has demonstrated to the reasonable satisfaction of MARL and MARIL (as the case may be) that the relevant associate has or has access to all necessary expertise, experience and resources for it to perform MCFAS’s obligations under the MQA Management Agreements.

The MQA Management Agreements are not able to be terminated by either MCFAS or MARL and MARIL (as the case may be) in the event of a change of control of MARL or MARIL. However, as noted above under ‘Termination’, the agreement will terminate if MQA Securityholders so determine by 50% majority resolution. Base fees and performance fees accrued to the date of termination will be payable by MARL and MARIL in those circumstances.

 MQA Management Agreements clause 19

MQA co-invests from time to time with other Macquarie companies or managed vehicles. Co-investment arrangements may include pre-emption and tag-along or drag-along rights in favour of each other including rights which are triggered on removal of the Macquarie manager typical of those agreed with third party co-investors.

Removal of manager trigger events are typically put in place because counterparties (both equity and debt providers) require ongoing Macquarie involvement in the management of the fund or particular businesses.