Crusade St. George, Australia's fifth-biggest bank, began marketing the second global MBS issue under its Crusade program at the ABS West conference on Friday.

Details of the transaction will be finalized in response to investor feedback. In outline, however, the deal will total around $1 billion, including A$240 million of domestically-issued paper.

Jeff Sheehan, the bank's head of capital markets, and Roger Desmarchelier, head of mortgage securitization, said the transaction would build upon the first Crusade global deal, completed in September 1999.

Pricing, however, was likely to reflect the new benchmark for Australian mortgage pools set last month when National Australia Bank sold $1.059 billion of mortgages through its Homeside Mortgage Securities Trust.

St. George

St. George's first venture into the global MBS market consisted of a $994 million issue which included a tranche designed specificially for European investors - then a novelty in the Australian global MBS market. There were three triple-A rated senior tranches: $300 million of Class A1 notes with a weighted average life of 0.7 years; $569 million of Class A2 notes with a WAL of 3.5 years and $125 million of seven-year A3 notes (the tranche is targeted at Europeans).

The tranches were priced at 25, 33 and 42 basis points respectively. The issue - for which the lead manager was Credit Suisse First Boston and the co-leads, J.P. Morgan Chase and Deutsche Banc Alex. Brown - included a A$4 million subordinated tranche, sold domestically.

St. George has mandated the same investment banks in the same roles for the second global, while the bank itself will act alongside CSFB as joint lead for the domestic tranche.

The only details that Sheehan and Desmarchelier would disclose were that two of the three senior tranches would be in US$ and one in A$, and that the A$240 million of domestic issuance would be split into two tranches.

They declined to specify what proportion of the domestic issuance would be subordinated, but they indicated that the level of subordination would be lower than that on the earlier deal.

"We expect to see a difference in pricing consistent with Homeside, [the pricing of] which showed very strong support for Australian assets," said Desmarchelier.

U.S. investors

Sheehan added that there was a flight to quality among U.S. investors, who were beginning to appreciate the lower level of losses and delinquencies in Australian mortgage pools compared to those in the U.S. and elsewhere.

NAB, the biggest Australian bank, priced $1.059 billion of senior Class A into the U.S., European and Asian markets at 19 basis points over three month Libor and A$20 million subordinated Class B notes at 52 basis points over the bank bill swap rate.

One interesting twist about the latest deal is the inclusion among the mortgage insurers of the bank's Singapore-based captive insurer, St. George Insurance. This is the first time that SGI has been involved in a securitization and the reason for its inclusion, said Sheehan, was to offer offshore investors some diversity in their exposure to Australian mortgage insurers.

U.S. investors have become concerned about the credit exposures of the five main Australian mortgage insurers, in response to warnings by Moody's Investors Service that their balance sheets could become constrained.

The senior Crusade tranches are expected to be rated triple-A by Standard & Poor's Ratings Services, Fitch Inc. and Moody's. SGI is rated A+ by Fitch, single A by S&P and A3 by Moody's - a three way split rating that corresponds exactly to the agencies' ratings of the bank.

The other insurers to the pool are GE Mortgage Insurance (rated AAA by S&P) and PMI Mortgage Insurance (AA-). The deal is expected to be priced in about two weeks.

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