The shake-out among Australia's larger non-bank home loan securitizers is creating opportunities for new financing vehicles, as Canadian bank CIBC has become the latest entrant to the market with a US$2.5 billion program capable of issuing either U.S. or Australian commercial paper.

The move is all the more notable from an Australian perspective, because CIBC's only other line of business in the country is as an adviser to the mining industry. There is a method to CIBC's apparent madness, however. The bank is one of a number of financiers taking advantage of the split between originator Aussie Home Loans and its principal funding vehicle - PUMA Finance, which is managed by Macquarie Securitisation - to set up multiseller programs capable of servicing AHL and others. The possibilities are intriguing, given the changes happening in the Australian market.

AHL and PUMA split last year after a successful three-year alliance which had enabled them to dominate their respective fields: AHL is by far the biggest non-bank securitizer, writing about A$300 million of loans a month, while PUMA has a securitized loan portfolio of around A$7 billion. The relationship became strained after major Australian banks, such as Westpac Banking Corp. and Commonwealth Bank of Australia, began securitizing their own, much bigger, mortgage portfolios and capturing economies of scale that put pressure on the margins of their non-bank competitors.

In the case of AHL and PUMA, the competition exposed inefficiences arising from an overlap between the two parties in certain aspects of the mortgage servicing function. The split led AHL to seek new funding solutions and a strategy that would allow it to broaden its product line; similarly, PUMA began looking for new originators. AHL plans to set up its own funding vehicle, but has formed at least one non-exclusive relationship with a third party in the interim. This is Origin, a subsidiary of ANZ Banking Group, which is financing about A$150 million of AHL assets a month (on balance sheet, at this stage). AHL is also holding discussions with Chase Manhattan Bank, Australian Mortgage Securities (which is owned by ABN AMRO) and CIBC. Of the three, only AMS is an established securitizer.

Although Chase has an interest in Longreach Capital Pty Ltd., which securitizes syndicated infrastructure debt, the bank has yet to launch a mortgage-backed vehicle. Chase's role in an AHL securitization may, in any case, draw on other aspects of its business: Its custodial services operation, for example, could issue checks to investors.

The CIBC program consists of Asset-Backed Securitisation Corporation Ltd. and ABSC Capital Corporation Inc., both of which will be issuers - the former into the Australian market, and the latter into the U.S. Moody's Investors Service rated the program P-1.

According to CIBC sources, assets have already been lined up (the sources declined to disclose their origin), and the first issue could take place within a month. The decision as to whether to issue in Australia or the U.S. will depend entirely on the pricing arbitrage, which currently favors a U.S. transaction. Since the U.S. dealer panel has already been finalized, while its Australian equivalent is still taking shape. Goldman Sachs is the lead in the U.S., backed by Merrill Lynch and CIBC Oppenheimer. In Australia, Warburg Dillon Read is the lead. National Australia Bank is likely to take part while a third dealer has yet to be appointed.

CIBC's launch of a multiseller vehicle could subtly alter the dynamics of the market, which has become increasingly polarized between those who issue regularly in the domestic sector and those who raise funds offshore. The offshore issuers tend to be the big-hitters, such as Westpac Securitisation Trust, PUMA, RAMS Mortgage Corp. and St. George's Euro Crusade Trust, which can satisfy European and U.S. investors' demand for large, liquid issues.

The relatively small domestic market, while line-ball in terms of pricing relativities, is incapable of creating the same economies of scale but is adequate for issuers such as Super Members' Home Loans and Adelaide Bank's Torrens Trust, which typically issue around A$200 million at a time. The availability of a multiseller program backed by an international sponsor might prompt some of these smaller, local issuers to consider banding together to access the foreign debt markets - an idea that has been discussed but largely discarded because of its practical complexities.

Coincidentally, both SMHL and Torrens Trust have launched deals. SMHL is marketing a A$230 million mortgage-backed issue with a 3.7-year weighted average life to price between 34 and 36 basis points over the three-month bank bill swap rate The lead manager is Credit Suisse First Boston, with Macquarie Bank as co-manager.

The Torrens Trust deal consists of two senior tranches of A$121 million and A$122.7 million with an anticipated average life of one year, 10 months, and four years, 10 months, respectively, offered at between 29 and 32 basis points and 37 and 40 basis points over the swap rate. Pricing for the A$4.9 million subordinated tranche was kept confidential. When Torrens last did a deal, in December, the senior debt sold at 41 basis points over the benchmark. Warburg Dillon Read is lead manager of the latest transaction with Credit Suisse First Boston and ABN AMRO as co-managers.

- Roger Hogan

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