Given unprecedented Australian RMBS issuance of over A$20 billion ($14.6 billion) in the second quarter, the razor-thin spreads that have characterized transactions throughout 2006 could not be expected to continue indefinitely. And early evidence of pricing moving outwards - at least on triple-A tranches - could be seen on transactions completed last week by Heritage Building Society, Bluestone Group and Adelaide Bank.
Heritage closed an A$750 million prime RMBS through its HBS Trust facility. Societe Generale and Westpac Institutional Bank acted as joint lead managers on the transaction, which unusually featured no low-documentation mortgages.
Despite that strong selling point, the A$731 million senior piece - rated triple-A by Moody's Investors Service and Standard & Poor's with a 2.5-year average life - priced at 16 basis points over the Bank Bills Swap Rate (BBSW), the wide end of the indicative range.
The 4.7-year, AA-rated A$19.1 million sub-piece offered a 20-point pickup. According to the leads, 15 accounts participated, with 25% of the notes placing with European and Asian buyers.
Barclays Capital and Westpac put together the A$604.55 million nonconforming RMBS for Bluestone, which was sold through the borrower's Sapphire facility.
The transaction featured three triple-A tranches - as rated by Fitch Ratings and S&P - with 2.1-year average lives. The A$431.75 million super senior notes finished 22 over BBSW, two points wider than anticipated. The mezzanine and junior pieces priced at 24 and 28 over respectively, in line with initial guidance.
In addition, several subordinated tranches were structured into the deal. Of the publicly offered bonds, spreads ranged from 38 points on the double-A notes to 375 over BBSW for the double-B bonds.
Adelaide's RMBS
Adelaide Bank completed an A$1 billion sub-prime RMBS via its Q-Trust, securitizing loans bought from GE Mortgage Solutions. National Australia Bank was sole lead.
The deal featured a A$504 million super-senior tranche - rated triple-A by S&P and Moody's - that priced at 18 basis points over BBSW for a 1.02-year expected average life. Pricing was not disclosed for the A$360 million senior tranche -also rated triple-A for 2.72-years -which was retained by the borrower.
Subordinated tranches with 3.27-year average lives saw pickups ranging from 40 basis points on the double-A minus notes to 135 points on the triple-B piece. Orders came from 17 investors, with 25% of the bonds selling offshore.
CMBS activity
Shifting asset classes, Aussie developer Centro Properties will tap two existing CMBS transactions to raise A$325 million. ANZ Investment Bank is leading the sale, repeating the role it fulfilled on the two earlier offerings. Pricing was due as of press time.
A$170 million will be added to the Centro's Series One deal, launched in November 2002, and secured over seven shopping malls. An additional A$155 million will come from the Series Two offering - completed in March 2003, and backed by revenues generated by four shopping malls.
No new collateral has been added to the initial portfolios on either deal. However, several malls have been redeveloped or extended, causing a substantial increase in cash flows.
The Series One deal - with an average life of 1.5-years - will see further issuance of triple-A notes, as well as new classes going from double-A down to triple-B. Initial price guidance suggests the senior paper will pay around 16 basis points over BBSW, with the sub-pieces offering between 22 and 40 points.
Meanwhile, the series two transaction - which has a 3.5-year average life - will see additional triple-A notes issued, with market talk suggesting a spread of 19 over BBSW. Expected spreads for the sub tranches range from 26 basis points for double-A paper to 60 over BBSW for the triple-B minus bonds.
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