The prospects for another record year in the Australian mortgage-backed securities markets have improved further with the announcement by ANZ Banking Group that it is to enter the securitisation market.
ANZ is one of the country's four major domestic banks with a total Australia-New Zealand loan portfolio of around A$50 billion equivalent (US$29 billion). Australian owner-occupied home loans, which will be the focus of the first few transactions, account for around A$24 billion.
As this issue went to press, ANZ was about to price a A$400 million inaugural deal through a special purpose vehicle called Kingfisher Pty Ltd.; the bank's investment banking division, ANZ Investment Bank, was arranger with Deutsche Bank and Macquarie Bank as co-managers.
Starting at Home ...
The deal was split into three senior tranches: A$160 million of Class A1 notes with a weighted average life of 1.3 years; A$120 million of Class A2 notes with a WAL of 3.5 years, and A$108 million of Class A3 notes with a 6.3-year WAL, all rated AAA by Standard & Poor's. The transaction also included A$12 million of AA-minus subordinated notes.
Price talk was said to have been between 25 and 27 basis points for the first senior tranche and 37-39 and 41-43 basis points for the other two senior tranches respectively. No pricing range was revealed for the subordinated paper, which was to be placed privately.
... But Moving Abroad
The deal was perfectly conventional, reflecting the bank's strategy of making a modest but successful start in the domestic market before moving into the offshore markets later this year - either Europe or the US - with a A$1 billion transaction.
Other aspects of the issue designed to make investors feel at home included 100% mortgage insurance and a 50 basis point coupon step-up if the August 2007 call is not exercised. The structure's conservatism contrasted with the frequently innovative approach ANZIB has taken to designing asset-backed transactions on behalf of the bank's corporate clients.
Australian banks have begun to dominate the mortgage-backed markets by the sheer size of the deals they have to offer. This was not always the case. In the mid-1990s, a handful of non-bank mortgage financiers led by Aussie Home Loans began using what was then the novel technique of securitization to finance a home loan sector that would undermine the high fixed costs of the banks.
Their success quickly forced the banks to follow suit. Westpac Securitisation was the first into the market in 1998 followed by St. George (the country's fifth biggest bank) and Commonwealth Bank of Australia. National Australia Bank, which has been developing its U.S. subsidiary HomeSide as a mortgage origination and management platform, is expected to follow soon.
The banks' need for large volume transactions has led them to focus on offshore issuance while the non-bank and smaller regional bank securitizers have concentrated on the domestic markets.
The trend was bucked this year, however, as a number of non-bank securitizers moved to the US in order to diversify their portfolios while some of their larger competitors returned to the domestic market, deterred from issuing offshore by the foreign currency and basis swap levels, which have been at record highs.
Big and Clever
The prospect of additional assets coming to market this year from ANZ and NAB appears to have firmed up a prediction by Moody's Investors Service that MBS issuance this year could be A$20 billion, up 16% on the A$17.2 billion achieved in 1999.
At the more exotic end of the market, issuers continue to push back the boundaries of what was once thought to be acceptable. Queensland-based Wide Bay Capricorn Building Society has launched the biggest high loan-to-valuation ratio deal to date, through SG Australia.
The A$200 million transaction has LVRs of up to 102.2%, significantly higher than the only previous high LVR deal - a A$42 million issue through Permanent Custodians, backed by loans originated by the Home Loans Company on behalf of builder A.V. Jennings.
The mortgage pool underpinning the Wide Bay transaction is insured 100 per cent, but as neither Wide Bay nor the insurer - a captive owned by the building society - is insured, the insurance is deemed irrelevant for rating purposes. The AAA rating is achieved instead through the unusually high 31% ratio of subordination.
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. The Class A notes were launched at 32-35 basis points over the bank bill swap rate. The Class B notes, which were oversubscribed, priced earlier at 70 basis points over BBSW.
Further diversity was injected into the asset-backed market when Westpac Banking Corp. arranged an A$800 million private placement of floating rate notes on behalf of a conduit, Waratah Finance Pty Ltd., and backed by margin loans originated by Leveraged Equities Ltd, a subsidiary of regional bank Adelaide Bank. No pricing details were released.