Citi keeps momentum going for Australian RMBS
Citi has been quick to capitalise on the reopening in the Australian RMBS market with a new A$500m ($346m). It follows hard on the heels of Commonwealth Bank of Australia’s (CBA) recent A$2bn trade that came after a jittery period in markets.
Fears over China’s economy sent shockwaves around the world in recent weeks putting to a halt to not just equities, but also credit markets.
But CBA proved that it was possible to overcome the jittery sentiment when it completed an A$2bn RMBS last week.
Even though pricing for that deal had to come at the investor friendly end of guidance, CBA was able to attain a heavily covered book, which allowed it to raise double than what it had initially indicated to the market.
“Markets worldwide have been very volatile recently. It’s usually the safest asset classes that tend to rebound first when markets are like this, which is why the securitization market is getting more attention now,” a Sydney-based structure finance analyst said.
He added that many banks had been looking at the Australian RMBS market for a while but were put off by the volatility. But now that CBA has come and done one with great success, others are likely to take it as a cue to go-ahead with their securitization plans.
Citi has been first out the blocks announcing a self-led A$500m RMBS on September 7.
The Securitised Australian Mortgage Trust 2015-1 comprises of three tranches with Citi seeking to raise A$460m from the A portion, A$15m from the AB notes and A$25m from the class B. Only the class A is rated by Moody’s with the agency assigning it AAA (sf).
That is the same rating Moody’s gave to the senior portion of Securitised Australian Mortgage Trust 2014-1 although there are differences when it comes to the asset pool composition of the two deals. Citi raised A$1.13bn with 2014-1 last November.
The weighted average scheduled LTV (loan to value) is higher this time around, coming in at 70.91% compared to 66.81%. While the average loan size is also much higher for 2015-1, with an average size of A$445,331 compared to A$322,730.
The combination of bigger loans and a smaller deal meant investors are looking at a less granular transaction with only 1,124 loans in the asset pool. The 2014-1 had 3,498 loans.
Average seasoning of the loans stands at 26.83 months, which Moody’s puts down as a positive trait since it mitigates the risk of early payment default.
However, the rating agency did have some concern when it comes to the concentration of the portfolio since 48.9% of the loans were in New South Wales. The over-concentration is down to the nature of Citi’s distribution network in Australia. As a result, it is consistent with the lender’s past Australian RMBS.