Commonwealth Bank of Australia recently priced its second global mortgage-backed transaction, achieving better pricing compared to the first deal which was completed earlier this year.

The latest, Series 2000-2G Medallion Trust, consisted of US$1.06 billion of triple-A rated notes with an expected average life of 3.1 years. The deal was oversubscribed 1.6 times and priced at 20 basis points over three-month Libor, three basis points cheaper than the inaugural transaction. Merrill Lynch was lead manager with Deutsche Bank and J.P. Morgan as co-leads.

There were also two domestic tranches: A$400 million of senior Class A-2 notes and A$27 million of subordinated paper with EALs of 3.1 and 5.1 years respectively. They sold at 37 and 57 basis points respectively over the three-month bank bill swap rate.

Meanwhile, Australian Mortgage Securities financed an unprecedented A$1.5 billion in the domestic market in two separate deals within days of each other, and turned market convention on its head in the process. While A$750 million was financed through mortgage-backed securities, the balance was financed through a bank loan.

The strategy was not without irony, given the role of AMS and other non-bank financiers as challengers of the banks' dominance of the mortgage market.

The MBS deal was the company's biggest to date in the domestic market. ARMS II Fund VIII consisted of A$726 million of senior debt split into a A$220 million tranche (Tranche 1) with an expected average life of 1.4 years and a A$506 million tranche (Tranche 2) with an EAL of 4.9 years.

Both tranches were rated triple-A by Standard & Poor's, Moody's Investors Service and Fitch. The deal also included a A$24 million tranche of subordinated paper with a 7.4 year EAL. ABN Amro, which owns AMS, was sole lead.

Tranche 1 was priced at 25 basis points over the one-month bank bill swap rate, which was at the top of its marketed range of 23-25 basis points. Tranche 2, most of which was privately placed, was priced at 40 basis points over the benchmark. The subordinated paper was placed at a margin of 60 basis points.

Few details were revealed about the bank loan, other than that it was a fully-drawn revolving credit facility with a maturity of between two and three years. The company had resorted to the loan as an alternative to issuing MBS offshore. According to a spokesman, the domestic MBS market would not have supported another A$750 million deal so soon after the first, and the historically wide Libor/BBSW basis swap spread made issuing offshore prohibitively expensive. The bank loan was just "another funding source."

AMS claims to be the biggest non-bank mortgage financier, processing between A$200 million and A$300 million of assets a month.

Finally, Fitch has said it expects more securitization of non-conforming home loans in Australia. In a report outlining its criteria for Australian non-conforming mortgages, the ratings agency estimated the market to be worth A$20 billion. Slightly more than A$500 million has been securitized to date. Fitch defined non-conforming mortgages as those that would not normally be eligible for insurance by the five main mortgage insurers in Australia.

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