Australia's securitization market in 2006 has already established a new record for issuance with two months in the calendar year remaining. According to Standard & Poor's, volumes for the first 10 months of the year totaled A$65 billion ($49.7 million), exceeding the A$64.3 billion record for a calendar year set in 2004 and comfortably above 2005's total of A$56.1 billion.
With several deals still in the pipeline for Nov. and Dec., the final total could top A$70 billion.
The 93 transactions completed so far in 2006 easily tops the 78 closed in the corresponding period last year. And, for the first time ever, the number of non-RMBS deals, 45, exceeds the RMBS sector, 38, with CDOs, asset-backed deals and commercial-backed mortgage issues showing strongly.
In terms of volume, RMBS still accounts for 80% of issuance and will remain Australia's number one asset class. However, RMBS in 2005 represented 92.6% of market volumes. This development highlights the increasing number of non-RMBS sellers lining up to exploit strong domestic and offshore appetite for Aussie deals, which has led to spread contraction across all asset classes.
Aussie RMBS transactions
Staying Down Under, two more RMBS deals were launched last week by specialist mortgage originators FirstMac and Interstar Wholesale Finance.
FirstMac is working with joint leads ANZ Bank and Royal Bank of Scotland on an A$398 million offering. Roadshows were held in Australia and Asia last week, with pricing due on Nov. 23.
The deal marks the first time the borrower's underlying pool has combined prime mortgage loans with construction loans. The latter, representing 18% of the pool, are extended to borrowers to build as yet incomplete dwellings with the loans not fully drawn.
Additional credit enhancement - mainly through subordination - has been structured into the deal to mitigate the extra risks involved with construction loans. These include cost overruns, builder defaults and lower recovery rates for partially completed houses.
At launch, the pool comprises 2051 loans with a weighted average loan-to-value of 69.2% and seasoning of six months. Genworth and PMI Mortgage Insurance are providing mortgage cover.
The deal features A$356.6 million of senior notes, rated triple-A by Fitch Ratings and Standard & Poor's, and an A$40.8 million double-A piece. In addition, there are A$3 million of triple-B-rated bonds and an A$0.8 million BB-rated piece.
Meanwhile, Interstar appointed Commonwealth Bank of Australia to arrange its A$300 million non-conforming mortgage deal. The borrower, part of the Challenger Financial Services group, held roadshows in Australia last week and expects to price before the end of the month.
The deal is backed by 1,104 mortgages; 72% of which are low documentation loans. The current LTV of the pool is 77.2% with seasoning of 7.97 months.
Interstar will sell two senior tranches totaling A$253.7 million. Both carry 1.58-year average lives and are rated triple-A by Fitch and S&P. In addition, four subordinated tranches have been structured into the deal, going down the credit spectrum from the A+ rated B notes to an unrated equity piece.
Earlier this month, Interstar completed a A$400 million high-LTV RMBS, which saw spreads of 23 and 25 basis points over the Bank Bills Swap Rate (BBSW) for the 2.9-year and 5.5-year triple-A tranches.
Also in Australia, price guidance has emerged for the 2.6-year triple-A tranches on the A$450 million non-conforming RMBS by Mobius Financial Services. The A$266 million A1 notes are being marketed in the low 30's range over BBSW, while the A$90.9 million A2 paper is expected to price between 38-89 points. The deal, arranged by Barclays Capital and Commonwealth Bank of Australia, is due to price this week.
The A$2.1 billion-equivalent global RMBS by Macquarie Securitisation, Australia's most active issuer, was due to price as of press time. Citigroup, Deutsche Bank and Macquarie Bank are lead managers with Royal Bank of Scotland co-manager on the three-currency deal, sold via the borrower's PUMA program.
Indicative spreads for the $750 million 144A Reg S notes - rated triple-A by Moody's and S&P - are eight basis points over Libor on a 2.81-year expected average life. The A$400 million senior domestic piece - also rated triple-A - has been marketed at 17 points over BBSW for 2.74-years; while the 400 million ($512.1 million) Eurobond is expected to pay nine or 10 points over Euribor for 2.81-years.
In addition, the Aa2'/'AA'-rated A$55 million subordinated tranche is due to offer a pick-up in the low-mid twenties range over BBSW for 5.98-years.
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