Non-banks lead RMBS return to offshore
3 June 2014
Marion Williams
http://www.australianbankingfinance.com/capital-markets/non-banks-lead-rmbs-return-to-offshore/
RESIMAC has become the first Australian home lender to sell term mortgage-backed securities into the US market since the global financial crisis after it priced US$200 million of notes last Friday night.
The notes, part of a $750 million RESIMAC Premier 2014-1 transaction, have an expected weighted average life of 2.9 years and were priced at a margin of 70 basis points (bp) over US dollar Libor.
It was another non-bank lender that started the ball rolling last year by structuring residential mortgage-backed securities (RMBS) transactions with tranches denominated in a foreign currency. Last year Firstmac priced two RMBS transactions totalling $900 million, each with sterling-denominated tranches that totalled £177 million.
In April, Pepper successfully introduced offshore investors to Australian non-conforming RMBS. Its US$200 million hard-bullet one-year floating-rate transaction followed several years of visiting US investors and built on some Rule 2a-7 short-dated prime RMBS that Pepper had issued in the US money market fund segment.
RESIMAC has also issued in the Rule 2a-7 market and this has made its name and credit story familiar to some US investors.
This latest transaction has opened up the US dollar term market for Australian issuers by issuing the first US dollar term tranche out of this region since the global financial crisis, said Sofie Sullivan, executive director, securitised products group, at JP Morgan, joint lead manager of the US dollar offering.
She said it makes sense for the non-banks to be issuing into offshore markets given their relative cost of funding versus the major banks and regional banks that can raise money very easily from the domestic market.
Good demand for Australian securitisations
That was demonstrated last Friday when Westpac priced $2.3 billion of Class A notes at 78bp over bills while RESIMAC had to pay a margin of 105bp on its $470 million of Class A-2 notes. Both tranches have an expected weighted average life of 2.8 years.
RESIMAC took advantage of very favourable pricing on the cross-currency swap. “It has come in substantially so it is definitely better than it has been for some time,” said Sullivan.
There is evidently good demand for Australian securitisations at the moment with both the RESIMAC and Westpac RMBS transactions upsized from the initial launch size on strong demand from domestic and offshore investors.
“The level of investor participation in this trade is at levels we haven’t seen since the financial crisis,” said Mary Ploughman, executive director at RESIMAC.
The five-tranche dual-currency transaction attracted broad investor interest across all classes of notes, with the final order book “significantly oversubscribed” in all but the $5 million of unrated Class B2 notes. The notes were allocated to 26 investors, including seven in the US dollar Class A-1 notes, and several were new to RESIMAC.
“I think it is a fantastic achievement, RESIMAC being a non-bank has opened up the US 144a market,” said Sullivan. “It is a great way to build out their funding platform further. I really think it should be deal of the year.”
Two further securitisation deals were launched on Monday, including the $500 million IDOL 2014-1 Trust which is backed by prime home loans originated by ING Bank (Australia).
The other was Macquarie’s $500 million SMART ABS Series 2014-2E Trust. The transaction is backed by a portfolio of loans, leases and commercial hire purchase agreements secured by motor vehicles and equipment and originated by Macquarie Leasing.
Macquarie is following the non-banks' lead in that the $430 million of Class A notes may be denominated in either Australian dollars or euros.
http://www.investopedia.com/articles/mutualfund/10/a-safer-money-market-2a7.asp