Atlas Arteria (ALX) is a dual stapled vehicle externally managed by Macquarie. It was established in early February 2010 as a result of a security holder approved restructure of Macquarie Infrastructure Group (MIG).

ALX comprises Atlas Arteria Limited (ACN 141 075 201) (ATLAX), an Australian public company, and Atlas Arteria International Limited (Registration No. 43828) (ATLIX), an exempted mutual fund company incorporated in Bermuda. ALX is listed as a stapled structure on the Australian Securities Exchange (ASX). The securities of ATLAX and ATLIX are stapled and must trade and otherwise be dealt with together.

Management and advisory agreements (ALX Management Agreements) with Macquarie Fund Advisers Pty Limited (ABN 84 127 735 960) (AFS Licence Number 318123) (the ALX Manager) were entered into by ATLAX and ATLIX respectively at the time of establishment and subsequently amended effective 15 May 2018.

ATLAX and ATLIX have also entered into a cooperation deed which provides for sharing of information, adoption of consistent accounting policies and coordination of reporting to security holders (ALX Cooperation Deed).

Atlas Arteria Structure

EntityType of EntityAsset (various % holdings)Source of Income
ATLAX Australian public company Dulles Greenway1 ATLAX derives its income primarily from returns from its asset portfolio
ATLIX Bermudan exempted mutual fund company APRR, Dulles Greenway2, Warnow Tunnel ATLIX derives its income primarily from returns from its asset portfolio

  1. holds a 13.4% shareholding.
  2. holds a ~86.6% economic interest through subordinated loans.

ALX seeks to

  • deliver growth in the value of the existing ALX assets through active management of project operations to improve earnings, efficient capital management and the refinancing of project debt as suitable opportunities emerge over the medium term; and
  • identify and access accretive opportunities that will complement the existing portfolio.

The ALX Management Agreements are non-discretionary and substantially similar in their terms. They require the ALX Manager to assist with the general administration of the companies, to provide active management of the ALX assets and to make investment and divestment recommendations.

Key decision making is reserved to the ATLAX Board and the ATLIX Board (together the ALX Boards). The ALX Boards have no obligation to act on the recommendations of the ALX Manager and can appoint other advisers if they wish.

The ALX Manager has sub-advisory agreements with appropriately licensed or registered Macquarie Group companies in various non-Australian jurisdictions to assist with its management and advisory functions at no additional cost to ALX. All staff are supplied to these Macquarie management and advisory entities via resourcing arrangements with the Macquarie employing entity in the relevant jurisdiction.

On 15 May 2018 ALX shareholders approved an Internalisation Proposal at the ALX Annual General Meeting whereby ALX will cease to be externally managed by the ALX Manager no later than 15 May 2019. In preparation for this ALX has commenced a process of employing its own staff. Click here for further details.

The following is a high level summary of the ALX Management Agreements, addressing the disclosure recommended in ASX Guidance Note 26. We recommend that you also read the constituent documents on the ALX website. References to ‘Macquarie’ throughout this statement are references to Macquarie Group Limited and its affiliates.

Parties

ATLAX and ALX Manager to the ATLAX Management Agreement.

ATLIX and ALX Manager to the ATLIX 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 current focus on toll road investments, both greenfield and mature.

The investment policy may be varied from time to time on reasonable notice to ALX security holders.

ALX Management Agreements clause 4.3

Services

Subject to the instruction and supervision of the relevant ALX Board, the ALX Manager is responsible to ATLAX and ATLIX for:

  • Advice on any proposed investment or divestment
  • If the ATLAX Board and ATLIX Board approve an investment, acquisition and management of the investment on behalf of ATLAX and ATLIX
  • Provision of Macquarie executives as nominees of ATLAX and ATLIX to act as directors of subsidiary entities that hold investments and, where appropriate, making recommendations to the ALX Boards to appoint non-Macquarie nominees to these boards
  • Capital management and financial management recommendations
  • Recommendations to the ALX Boards in respect of various matters (including but not limited to changes to the ATLAX Constitution and ATLIX 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 MUFG Fund Services (Bermuda) 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
  • Provision of suitably qualified personnel to perform the CEO and CFO roles for ALX and the company secretary role for ATLAX.

ALX Management Agreements clause 4.1

Termination

On 9 April 2018 an agreement to internalise management was announced between ALX and Macquarie which was subject to shareholder approval.Further details can found on the ASX Release.Shareholder approval was given on 15 May 2018 at the ALX Annual General Meeting at which time the agreement became effective. As a result the Management Agreements will terminate no later than 15 May 2019 and can be terminated earlier at the option of ALAX and ALIX without cause.

ALX Management Agreements clauses 12.1 and 12.3(a)

 

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

ALX Management Agreements clause 12.3(b)

 

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

ALX Management Agreements clause 12.4

 

Base management fees will be paid for the period up until 15 May 2019 ( irrespective of any earlier without cause termination) at the current rate of 0.85% of ALX's Market Value (as defined below) excluding any shares issued after 30 June 2018.

ALX Management Agreements clause 9.1(h)

 

The following performance fees will also be paid:

  • a final performance fee will be calculated for the year ending 30 June 2018 and, if earned, will be paid in full at that time;
  • the third instalment of the 2016 performance fee and the second instalment of the 2017 performance fee will continue to be subject to their respective performance hurdles which, in accordance with the current agreement, will be tested on 30 June 2018; and
  • as a result of the termination of the MQA management agreements being no later than 15 May 2019, the third instalment of the 2017 performance fee will become payable without further performance testing.

ALX Management Agreements Clause 9.2(c)

 

Additionally ATLAX and ATLIX have each entered into a Transition Services Agreement with the ALX Manager for the period following termination of the ALX Management Agreements until 31 December 2019 for a monthly fee of $750,000.

ALX Transition Services Agreements clause 7.1

 

Asset level management and performance fees will also be payable by ALX to Macquarie from 16 May 2019 in respect of ALX's investment in APRR. Refer to the change of control section below.

 

Fees

Base fee

Payable quarterly.

0.85% per annum of Market Value.

'Market Value' at the end of a Calendar Quarter means the aggregate of the market value of the ALX securities calculated on the basis of the average number of ALX securities on issue during the last 10 trading days of the ASX in the relevant Calendar Quarter multiplied by the volume weighted average price (VWAP) of all ALX securities traded on the ASX over those 10 trading days.

The ALX Manager and its associates (including Macquarie) may, where the non-executive directors of ATLAX and ATLIX so determine, apply the base fee in subscription for ALX securities. The price of the ALX securities is the VWAP of the ALX securities traded on ASX during the last 10 trading days in the relevant Calendar Quarter.

ALX Management Agreements clause 9.1(c)

 

Performance Fee

A performance fee is payable at 30 June each year in the event that the performance of ALX securities equals or exceeds that of the Benchmark Return (based on the S&P/ASX 300 Industrials Accumulation Index) in the 12-month period ending on 30 June in each year (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 outperformance and is payable in three equal annual instalments. The second and third instalments are only paid if ALX’s performance equals or exceeds that of the index on a cumulative basis over the two- and three-year periods to each respective instalment date. The performance fee to be calculated in respect of any given Financial Year means:

  • Subject to the 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. The ALX Manager must allocate any deficit between ATLAX and ATLIX based on the net assets of the companies (adjusted for the net market value of its assets).

ALX Management Agreements clause 9.2

 

Annual Return means:

AR = A × (B − C) / C

Where:

AR = the Annual Return for the Financial Year

A = in respect of each Financial Year is the average number of ALX securities on issue during the last 10 ASX trading days in the previous Financial Year multiplied by the VWAP of all ALX securities traded on the ASX during that 10 trading days period, or, in the case of the initial Financial Year, using the 30 trading days following listing for the calculations

B = the average of the daily closing accumulation indices for the ALX securities over the last 10 trading days of the Financial Year as calculated by a person reasonably approved or selected by the ALX Manager and reported by Bloomberg

C = the average of the daily closing accumulation indices for the ALX securities over the last 10 trading days of the previous Financial Year as calculated by a person reasonably approved or selected by the ALX Manager and reported by Bloomberg, or, in the case of the initial Financial Year, over the 30 trading days following listing.

Benchmark Return means:

BR = 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 ALX 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 10 ASX trading days in the previous Financial Year multiplied by the VWAP of all ALX 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 10 trading days period, or, in the case of the initial Financial Year, using the 30 trading days following listing for the calculations

Y = the average of the daily closing S&P/ASX 300 Industrials Accumulation Indices over the last 10 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 10 trading days of the previous Financial Year, or, in the case of the initial Financial Year, the 30 trading days following listing as reported by Bloomberg.

The ALX Manager and its associates (including Macquarie) may, where the nonexecutive directors of ATLAX and ATLIX so agree, apply the performance fee in subscription for ALX securities. The price of the ALX securities is the VWAP of the ALX securities traded on ASX during the last 10 trading days of that Financial Year.

ALX Management Agreements clause 1.1

 

Apportionment of fees

The ALX Manager acknowledges that in respect of the performance fees that are earned under the ALX Management Agreements for the relevant period while stapling applies, the amount calculated under each of the ALX Manager Management Agreements are representative of the aggregate fees payable to the ALX Manager in respect of ALX.

Unless agreed in writing to the contrary by ATLAX, ATLIX and the ALX Manager, the allocation of the base fee and the performance fee between ATLAX and ATLIX is to be at the ratio of that amount of the aggregate net assets (adjusted for the net market value of its investments) of ATLAX or ATLIX as the case may be at the end of the relevant period bears to the amount of the aggregate net assets of ALX (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.

ALX Management Agreements clause 9.4 and Schedule 2

Expenses

The ALX Manager 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 the ALX Manager or any officer, employee, delegate, agent or contractor of the ALX Manager.

ALX Management Agreements clause 10

Exclusivity

The ALX Manager is not engaged by ALX on an exclusive basis, and ATLAX and ATLIX can appoint additional managers or advisers.

ALX Management Agreements clause 5.5

 

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

ALX Management Agreements clause 5.8

 

The ALX Manager and its associates have no obligation to provide investment opportunities, and ATLAX and ATLIX have no obligation to accept any investment opportunities. ATLAX and ATLIX will not have any priority in respect of investment opportunities sourced by the ALX Manager and its associates.

ALX Management Agreements clause 5.9

Discretions

The advisory mandate for ATLAX and ATLIX is non-discretionary. All significant investment/divestment and operational decisions are made by the ATLAX Board and ATLIX Board based on recommendations by the ALX Manager. The ALX Boards are not obliged to accept the recommendations of the ALX Manager.

ALX Management Agreements clause 4.1

Related party protocols

Mandates for the provision of services by the ALX Manager's associates to ALX or its controlled businesses or transactions with other Macquarie companies or managed vehicles, must be on an arm's length commercial basis and approved by the ALX Boards. The non-executive directors may take whatever measures they deem prudent to confirm the appointment for services or transaction are on an arm's length basis, including obtaining quotes for services from third parties or having the terms of the services or transaction reviewed by an independent third party.

ALX Management Agreements clause 8.1

 

The ALX Manager and its associates may hold securities in ALX in any capacity.

Fees paid or payable by ALX entities for Macquarie services will be disclosed in the ALX financial statements.

ALX Management Agreements clause 8.2

Change of control

A party may not assign any of its rights and obligations under the ALX Management Agreements without the prior written consent of the other party except to an associate of the ALX Manager, provided the ALX Manager has demonstrated to the reasonable satisfaction of ATLAX and ATLIX (as the case may be) that the relevant associate has or has access to all necessary expertise, experience and resources for it to perform the ALX Manager’s obligations under the ALX Management Agreements. The ALX Manager may also delegate its rights and obligations under the ALX Management Agreements to an associate but remains liable for the actions of the associate.

The ALX Management Agreements can be terminated by the Manager if there is a change of control of ATLAX or ATLIX (but not vice versa).

ALX 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.

Any co-investment and financing arrangements with removal of manager trigger events must be approved by the ALX Boards.

There are removal of manager trigger events in the APRR shareholder arrangements. Details are set out in the ASIC 231 Regulatory Guide disclosure on the ALX website. In particular Macquarie will start to receive base management fees of Euro7.4 million per annum for ongoing management of ALX’s interest in APRR from 16 May 2019. A performance fee may also be incurred, the calculation starts on 16 May 2019 and is based on an IRR achieved from an agreed valuation of APPR at that date. A performance fee equal to 15% of actual cash flows is payable when ALX’s internal rate of return exceeds 8%.

ALX Management Agreements clauses 12.2 and 20