Japanese securitization issuance at the end of the third quarter reached 5.4 trillion ($47.4 billion), according to Merrill Lynch, exceeding the total for the whole of last year. Comfortably the single largest contributor to this total is the Government Housing Loan Corp., Japan's GSE equivalent, which has issued nine deals worth 883 billion.
GHLC, which accounts for 30% of the country's mortgage industry, recently completed two deals: a 84.9 billion deal backed by newly originated loans and a 250 billion offering backed by outstanding loans that GHLC extended the seasoning of, the second of its S-series transactions.
The conventional MBS has a 10.3-year weighted average life and priced at 40 basis points over Japanese Government Bonds. Meanwhile the S-series deal, which has a 7.71-year average life and was arranged by Goldman Sachs, offers a more generous 64 basis point spread.
Given that its standard transactions normally offer an approximately five basis point pick up over where private sector MBS deals price, it is small wonder they continue to prove popular with investors. Indeed, secondary levels indicate that the GHLC 35 deal tightened to 36.6 points over Japanese Government Bonds just days after closing.
It is not just institutional investors who value the name so highly. A monthly issuer is pure gold to arrangers. Fortunately for the underwriter community, GHLC is happy to spread the mandates around.
The agency is currently undergoing a reorganization that will result in it being an independent company by 2007. In order that GHLC inherits no debts at inception, the government will assume all existing assets and liabilities. The flip side is that GHLC no longer gets state financial backing and has to fund itself purely through its MBS issuance. If it is to meet its 2.05 trillion funding target through securitizations this year, there could be some mega-sized transactions in the fourth quarter. Furthermore, GHLC has already stated plans to issue 2.76 trillion in 2006.
No wonder arrangers are queuing up to offer their services. To that end, both Bear Stearns and JPMorgan Securities have recently made significant hires to boost their respective presences in Japan. Bear Stearns brought in Akihiro Iisaka from Aozora Bank, to work under Nahoko Ohorio, head of Japanese RMBS. JPMorgan, meanwhile, lured Yuji Date from Shinsei Bank to run its MBS group.
Aside from GHLC, there is plenty of business to be had from private-sector mortgage lenders, which so far this year have issued around 1.8 trillion.
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