CIBC World Markets has developed a capital-efficient way of supplying credit enhancement to its Australian securitization activities through the issue of the first in what is expected to be a A$20 million series of mortgage-linked loan certificates.

The deal - through a special purpose vehicle, CNL Corp. Pty Ltd. - effectively syndicates the credit enhancement that the investment bank would normally provide to its multiseller conduit, Asset Backed Securitization Corp. Ltd.

ABSC Corp. is the parent entity for about 20 subsidiaries which, between them, own A$1.8 billion of Australian securitized assets. The conduit's own assets are the loans that it makes to the subsidiaries through the issue of commercial paper rated A-1+, P1 and F1 by Standard & Poor's, Moody's Investors Service and Fitch respectively.

CIBC WM, which provides the program's liquidity and credit enhancement, operates in Australia as a branch office, under Canadian prudential regulations.

These stipulate that a bank providing such support to a securitization business has to syndicate 25% of either the liquidity facility or credit enhancement.

According to CIBC WM executive director Anton Le Rutte, the bank chose to syndicate the credit enhancement, as it was smaller than the liquidity support. The first issue through CLN, arranged by CIBC WM and lead-managed by Macquarie Bank, provides credit enhancement for ASBC Subsidiary No. 9.

This holds A$250 million of Australian mortgage-backed securities. The CLN issue, for A$8.125 million, lays off 25% of the risk involved in enhancing the subsidiary's credit to the A-1+/P1/F1 level. The proceeds are invested in cash, so it is cash-collateralizing CLN's liability.

Pricing of the notes was kept confidential, but the coupon was based on a credit default swap structure linked to the underlying mortgages held by the subsidary - a concept Mr. Le Rutte acknowledged had been inspired by Commonwealth Bank of Australia's ground-breaking Medallion credit-linked note issue two years ago.

Payments from ASBC Subsidiary No. 9 to CLN made up for the difference between the coupon paid to investors and the return from the bank deposit into which the note proceeds had been invested. Mr. Le Rutte said that two similar transactions had been planned for March.

Macquarie/Orix

Macquarie Bank claims it may have facilitated the introduction of operating leases into the Australian finance market as a result of a NZ$98.4 million securitization carried out for the NZ subsidiary of Japanese financier, Orix.

The bank, through Macquarie Finance (NZ) Ltd., priced a NZ$498.4 million auto securitization - the first term, asset-backed issue into the NZ market and the first in either NZ or Australia to involve operating leases.

Operating leases - in which the residual risk lies with the finance company instead of, as with a finance lease, the customer - have been slow to take off in Australia because of tax reasons.

According to Macquarie, however, the Eden Park NZ Trust structure accommodates Australian tax law and, as such, could serve as a template for operating lease financings in Australia.

The issue consisted of NZ$43.5 million of Class A-1 notes with an expected life of 0.56 years and final maturity date of February 15, 2002; NZ$8.5 million of May 15, 2002 Class A-2 notes with an EAL of one year; NZ$39 million of February 15, 2004, Class A-3 notes with a 1.71-year EAL; and NZ$7.4 million of May 15, 2006, Class B paper with an EAL of 2.5 years.

The tranches were priced at 15, 18, 31 and 69 basis points over the bank bill mid-rate, respectively.

Mirvac

Property group Mirvac is preparing to launch the biggest commercial mortgage-backed securitization yet seen in Australia - a A$500 million lead jointly by ANZ Investment Bank and Westpac Banking Group, with Commonwealth Bank of Australia and Merrill Lynch as co-managers. Standard & Poor's has assigned a preliminary AAA rating.

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