The Australian market appears to be digging in for the run-up to Y2K and the possibility of further market volatility. Only four substantial deals have been priced or launched during the last month, together worth nearly A$2 billion (US$1.3 billion).

Only one the biggest, a US$994 million issue by St George Bank's Crusade Global Trust was offshore. The others were a A$180 million issue by a new funding arm of SG Australia's Asset Collateralised Entity suite of conduits; a A$100 million deal by Citibank mortgage financing vehicle Compass Trust and a similar-sized transaction by ANZ Investment Bank's Financial Assets Specialised Trust No. 7.

Each of these deals was innovative in its way, however as much a reflection of the relative youth of the market as the ingenuity of those driving it.

The Global Crusade Trust, while not the first global mortgage-backed issue by an Australian entity, was the first to design a tranche specifically for European investors (Westpac Banking Corp., through its Westpac Securitisation Trust, had been the only previous Australian global issuer; its deals, however, had been targeted primarily at U.S. investors).

The triple-A rated Global Crusade transaction consisted of three senior tranches: US$300 million of Class A1 notes with a weighted average life of 0.7 years; US$569 million of Class A2 notes with a WAL of 3.5 years and US$125 million of seven-year A3 notes (the tranche targeted at Europeans).

The tranches were priced at 25, 33 and 42 basis points respectively, with which St George which had pursued the deal largely as a diversification exercise professed itself happy. Significantly for the bank, Australia's fifth biggest, the deal virtually doubled in one go the volume of home loans it has securitized to date, from A$1.8 billion to A$3.3 billion.

The issue, for which the co-lead managers were J.P. Morgan and Deutsche Bank, included a A$4 million subordinated tranche, sold domestically.

Citibank steers by Compass

The novelty of Citibank's issue lay in its fixed rate structure and its eligibility to be sold offshore without incurring liability to interest withholding tax. The deal was the fourth in the Compass Master Trust series and otherwise identical to its predecessors, consisting of A$100 million of senior bonds (rated AAA/Aaa by Standard & Poor's and Moody's) and A$4 million of subordinated notes (A/A2), with both tranches over five years.

The deal was priced at 42 basis points over the swap curve, which some investors regarded as rather expensive. Lead manager was Salomon Smith Barney with Credit Suisse First Boston as manager.

Booze-backed MTN

ANZ's Fast No. 7 transaction was the first in Australia to finance trade receivables with a MTN. The receivables originate with Australian Liquor Marketers Pty Ltd. (ALM), the country's biggest broad-range wholesale distributor of wines and spirits.

ALM is owned by the Davids Group, the largest independent wholesale grocery distributor in Australia. One of the keys to reconciling the short-dated assets to the long-dated funding, according to sources close to the deal, was the use of "dynamic over-collateralization." In its pre-sale report, Standard & Poor's, which assigned a triple-A rating to the deal, said that net write-offs on the receivables during the last three years had been 0.15%.

"ALM's portfolio experiences relatively high turnover, with a relatively short period of exposure to dilution," said S&P. Dilution (excluding rebates) had averaged 0.9% of the aggregate receivables balance during the previous 12 months, when the highest dilution ratio had been 1.1%. The average days sales outstanding on receivables was about 32; receivables with terms of more than 60 days would be excluded from the program.

Fast No.7 will buy an equitable interest in a revolving pool of receivables, financing the transaction with the FRN issue.

SG deals an ACE

SG Australia created the country's first floating rate bullet-style note backed by equipment finance leasing when it launched ACE Funding Ltd.'s A$2 billion domestic MTN program.

The inaugural A$180 million deal (bullet FRNs with a legal final maturity of September 10, 2000 and rated A1 plus) financed the purchase of notes under the ABF Trust Securitisation Program, which funds equipment and operating finance leases originated by SG Australia subsidiary, SOGELEASE.

The ACE structure was also unusual in using a technique that allowed a bullet maturity without having to provide for a sinking fund. The notes were priced at 18 basis points over the bank bill swap rate.

The investment bank's ABS head, John Chauvel, said the structure enabled the repackaging of an asset-backed pass through note with a legal maturity of seven years into a combination of notes including a bullet security with a legal maturity of just under 12 months. "We see a large number of applications ... primarily ... repackaging securities into forms that will be more attractive to investors," he said.

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