Commonwealth Bank of Australia announced its second global mortgage-backed offering in August - a $US1.1 billion transaction through its Medallion program with a senior Australian dollar tranche - but attention during the month focused on the domestic market, where issuers were clearly excited by the level of demand.

Australian Mortgage Securities, a subsidiary of ABN Amro, launched an A$750 million (US$425 million) deal which was its biggest in the domestic market and, jointly with a deal last February by Macquarie Securitisation's PUMA vehicle, the biggest domestic transaction since the market's first major growth surge in 1996.

Significantly, the deal consisted entirely of floating rate paper whereas the PUMA transaction had been a mixture of fixed and floating rate. According to AMS treasurer, Andrew Zanchetta, this underlined the strength of demand in the local market, as floating rate paper had previously been marketable only in deals of between A$200 million and A$300 million.

The deal, on which ABN Amro was sole lead, consisted of two senior debt tranches - A$220 million with an expected average life of 1.4 years, and A$506 million with an EAL of 4.9 years. The tranches were rated AAA/Aaa by Standard & Poor's, Moody's Investors Service and Fitch and marketed at between 23 and 25 basis points and at 40 basis points respectively above the bank bill swap rate.

The deal also included a A$24 million subordinated tranche with a 7.4 year EAL (rated AA-minus by S&P and Fitch), the pricing of which was being kept confidential until after the deal had closed. Zanchetta said the margin was about five basis points lower than that available offshore after allowing for swap costs, but excluding offshore legal and ratings costs. He added that AMS was likely to make its first global issue sometime next year.

Fitch added to the buoyant outlook by estimating that the market for nonconforming home loans in Australia was worth about A$20 billion, and releasing a report that outlined its ratings criteria for the securitisation of such assets. The report appeared shortly after GE Capital announced its move into the local non-prime mortgage market, and after Queensland-based Wide Bay Capricorn Building Society priced the largest and most aggressive securitization of nonconforming mortgages yet seen locally. GE Capital, one of the country's biggest mortgage insurers, said it would originate non-prime loans, using Adelaide Bank's loan processing capabilities.

Mortgages in the pool securitized by Wide Bay had loan to valuation ratios of up to 102.2%. WB Trust 2000-1 consisted of A$138 million of AAA senior Class A notes with an expected weighted average life of 1.7 years and A$27 million of Class B mezzanine notes rated A with a three-year expected WAL. The A$35 million of unrated subordinated Class B notes, also with a three-year WAL, were retained by Wide Bay.

As reported in the last issue of ASRI, the Class B notes, which were oversubscribed, priced at 70 basis points over the bank bill swap rate. After that issue went to press the Class A notes, launched at 32-35 basis points over BBSW, priced at the top of that range. Lead manager was SG Australia.

ANZ Banking Group achieved its objective of making a smooth debut in the mortgage-backed market, pricing the A$400 million inaugural issue from its Kingfisher Securitisation Pty Ltd funding vehicle at the lower end of the marketed range, and increasing the transaction to A$500 million to meet oversubscriptions. The deal consisted of three senior tranches, originally structured as A$160 million of Class A notes with a weighted average life of 1.3 years; A$120 million of Class A2 notes with a 3.5-year WAL and A$108 million of Class A3 notes with a WAL of 6.3 years.

It also included a A$12 million tranche of subordinated Class B notes with a WAL of seven years. The senior debt was rated AAA by S&P; the subordinated tranche, AA-minus. The senior tranches were marketed at 25-27, 37-39 and 41-43 basis points respectively over the BBSW, while the subordinated date was privately placed with no disclosure of price.

Investors were attracted to the bank's name (it is one of the country's four major domestic banks), the scarcity value of the assets, and the ultra-conservative design of the transaction which, in addition to the senior/subordinated structured, included 100% mortgage insurance and a step-up coupon of 50 basis points if a call option due August 2007 was not exercised.

The senior tranches were increased to A$200 million, A$150 million and A$135 million and priced at 25, 37 and 43 basis points over BBSW respectively. The subordinated tranche was increased to A$15 million. ANZ Investment Bank was lead manager. The Kingfisher vehicle, which is designed to securitize auto loans and credit cards as well as mortgages, is expected to issue offshore next, with a deal worth the equivalent of around A$1 billion.

Meanwhile, Members Equity - a joint venture between French-owned insurer and fund manager AXA Australia and superannuation manager Industry Fund Services - returned to the domestic market after making its offshore debut in June with a US$700 million global mortgage-backed deal through Credit Suisse First Boston. The A$346 million SMHL Fund SF-9 transaction, also led by CSFB, was the program's largest domestic public issue to date and was due to price shortly after ASRI went to press.

It consisted of one pass through A Class Bond (A$340 million) supported by a single subordinated B Class bond (A$6 million), rated AAA /AA respectively by S&P and Aaa/Aa2 by Moody's. Macquarie Bank and National Australia Bank were co-managers. SMHL, which stands for "Super Members Home Loans," finances home loans marketed to members of industry superannuation funds.

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