Bluestone Mortgages has become the second non-conforming mortgage financier to issue term debt in the Australian market, and has done so in style by launching the first public deal to include an interest-only strip.

The transaction, arranged by Westpac Institutional Bank, provided one of the few signs of life in a market suddenly grown quiet after a busy first quarter. It consisted of a A$134 million package of mortgage-backed securities sold through the Sapphire Series 2002-1 Trust.

The five tranches, which had a legal maturity of July 2033, included three rated AAA: A$60 million of Class A1 and A$58.5 million of Class A2 notes and a Class I interest only strip. The A-rated, Class M mezzanine notes amounted to A$8.25 million, while the A$7.25 million Class B subordinated paper was rated BB.

The two senior tranches, offered at between seven and nine basis points over the curve, where competitively priced for AAA debt. Ratings agency Fitch said that 69% of loans in the pool were to borrowers who had self-certified their income.

The pool consisted of 746 loans with a weighted average loan to valuation ratio of 75.2% and a weighted average seasoning of 5.39 months.

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