By Chelsea Wallis
Nov. 7, 2012 – KangaNews Online
Homes in Sydney’s inner west (Photo by Chelsea Wallis)
SYDNEY – Two of the residential mortgage-backed securities (RMBS) to price in the Australian market in recent weeks closed with significant upsizes from launch volume, leads say. Deal participants believe this points to sustained demand for securitisation despite strong deal flow from August and September slowing in Q4 so far.
The deals – a prime RMBS from People’s Choice Credit Union (PCCU) and a non-conforming issue from Resimac – added A$50 million each to their launch volumes.
PCCU highlights demand
In another example of trending demand for Australian RMBS, a prime issue from PCCU, Light Trust No. 4, was upsized on oversubscriptions, according to leads.
The deal priced on November 2 with Westpac Institutional Bank (Westpac) as the sole arranger and joint lead managing with National Australia Bank (NAB). It consists of two senior tranches rated triple-A and two subordinated B tranches that leads say were retained by the issuer.
“A combination of strong demand from both balance sheet and real money accounts gave the deal momentum to upsize to A$450 million [US$469.8 million] from A$400 million and price on the same day,” says Craig Stevens, associate director, wholesale banking – securitisation at NAB in Melbourne. He also confirms the class A notes were 1.4 times oversubscribed while the AB notes were three times oversubscribed.
The Australian Office of Financial Management indicated it would support the transaction, according to Richard Lovell, executive director, structured and asset finance at Westpac in Sydney, but in the end it was scaled out entirely.
There was room for offshore participation out of Europe, Lovell says, thought it was reasonably limited in volume. Stevens explains the deal was structured to be CRD II compliant, allowing for offshore participation in the transaction.
Both leads expect more securitisation before the end of 2012: “The pipeline certainly suggests a solid deal flow in the short term with improving market conditions prompting issuers to assess current opportunities,” Stevens says.
Resimac finds buyers
Resimac’s latest RMBS was upsized to A$300 million from A$250 million and the margin tightened across the whole non-conforming structure, the issuer says. Deal leads point to what could be an emerging investor base specifically interested in subordinated tranches as a contributor to the deal’s success.
Resimac’s eight-tranche Bastille Trust Series 2012-1NC, with NAB and Deutsche Bank as joint arrangers and joint lead managers, priced on October 26. While the lowest tranche was retained by Resimac, according to Sarah Samson, associate director, securitisation at NAB in Melbourne, there was significant demand for the A notes, and all other notes were sold to real-money investors. In addition, Samson confirms some offshore investors came in to the deal as Australian RMBS now appears to be attractive relative to other potential investments.
“The target of the Bastille deal was to develop and broaden the Australian dollar investor base for this programme,” says John Claudianos, managing director and head of securitisation at Deutsche Bank in Sydney. He also noted the deal drew three international investors from Asia, Europe and the US. Though all the investors in the final book were real money, Claudianos confirms balance sheet investors did place bids for notes.
“What was most encouraging was the large real-money investor participation and the high and growing number of buyers that were targeting the mezzanine and subordinated, high-yielding notes all the way down to the double-B tranche,” Claudianos says. “Five of the 12 investors were in the triple-B and lower notes – that was a situation we wouldn’t have seen 12 months ago.”
Having launched a prime RMBS into the 144A market in May, Mary Ploughman, executive director of securitisation at Resimac in Sydney, confirms the timing was right for the warehouse, as the transaction was the company’s first non-conforming deal since 2011.
The strong appetite reflects the risk-on tone in an overall market with too few assets, leads say, and Resimac is looking to make the most of it.
“We term out both prime and non-conforming programmes annually, but if volumes pick up we could do it even more often,” Ploughman explains. The company does not expect to issue again until 2012, but looks to do so again in early 2013, she says.