Last Year Saw a Record Number of Deals and Several New Trends, According to Rating Agencies

The outlook for the Australasian securitization market this year is buoyant, according to the three ratings agencies active in the sector.

Moody's Investors Service expected issuance to increase by 20% to "at least" A$25 billion compared to the A$21.1 billion achieved during 2000. Fitch agreed, pitching its expectations slightly higher for a 20 to 30% increase in issuance. Standard & Poor's was more circumspect, observing that 2001 was "shaping up as another busy year."

Prime residential mortgage-backed securities continued to dominate the securitization of Australian assets in both the domestic and offshore markets, accounting for A$19.1 billion equivalent or nearly 91% of the total, a 39% increase on 1999.

Non-bank issuers were the most active, issuing A$11.7 billion or 60% of the total, a 34% increase on 1999. Bank issuance was significant for the appearance of two new players - ANZ Banking Group and Bank of Western Australia.

Key trends during the year included a sharp increase in non-conforming MBS transactions (in Australia, defined as deals which do not meet mortgage insurers' criteria). The volume nearly tripled, from A$142 million to A$416 milllion.

Asset-backed (non-mortgage) issuance fell from A$2.4 billion to A$1.6 billion, partly offset by the emergence of the commercial mortgage-backed sector which produced A$520 million of deals compared to A$215 million in 1999.

Trends forecast by Fitch for this year include a growth in multiple currency issues, the increasing importance of conduits in the domestic residential MBS market, more non-conforming MBS and "strong growth in single-borrower CMBS."

Record Investments

Securitization professionals are intrigued by the market implications of the proposed A$200 million float and listing on the Australian Stock Exchange of an investment vehicle called Record Investments.

The vehicle will invest in structured finance assets, primarily those created by the local operation of boutique financier Allco Finance Group. The assets broadly fall into three categories: leases (finance and operating), securitization and managed funds.

Allco, which structured A$7 billion of assets last year and has a portfolio of about A$45 billion under management, normally sells its assets down to end-investors (such as banks and insurance companies) through investment banking intermediaries. According to Record Investments chairman Tony Berg, the company has historically achieved returns of 20% a year for its investors.

By sponsoring Record Investments, in which it will have a 10% stake, Allco will be able to participate in some of the returns accruing to end investors.

From a securitization market perspective, the launch of a specialist structured finance investor raises the prospect of a growth in appetite for securitized assets other than mortgages, leading to speculation that Record may further diversify the market's asset base. Record is a "pooled development fund," which offers investors concessions on income and capital gains tax.

NAB's debut

National Australia Bank, Australia's biggest bank, said it had established new pricing benchmarks for Australian mortgage-backed issuers with its first mortgage-backed deal.

The transaction, through The Homeside Mortgage Securities Trust, consisted of US$1.059 billion of senior Class A notes sold into the U.S., Europe and Asia and a A$20 million subordinated Class B domestic tranche.

The Class A notes were priced at 19 basis points over three month Libor, while the Class B notes were offered at 52 basis points over the bank-bill swap rate. The global tranche was sold through lead managers NAB, Deutsche Bank (book-runner) and J.P. Morgan Chase. National Australia Securities was sole lead on the domestic tranche.

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