CBA launched the Series 2015-2 Medallion Trust at the start of last week, as it sought to entice investors into a A$1bn RMBS split between a A$920m A1 tranche, a A$60m class B note and a A$20m class C junior piece retained by the lender.
Pricing for the self-led deal was only released for the A1 tranche, with investors being offered the notes at 85bp-90bp over BBSW. That was slightly wider than the A1 notes of Medallion 2015-1, which priced at 80bp over in March, and a treasury official said it was to reflect the uncertainty in the global macro environment rather than any structural or portfolio weaknesses.
| We're a price taker not a price maker, so we'll take whatever the markets give us |
The pricing strategy worked like a charm as investors poured into the transaction, resulting in books being overwhelmingly covered. But even though the deal was fully subscribed across the indicative guidance, CBA chose to price at the investor-friendly end of guidance, 90bp over, on September 4 as that was where most of the demand for the A1 tranche was.
“At the end of the day, we’re a price taker not a price maker, so we’ll take whatever the market gives us,” said the official.
Pricing wide, though, was not a bad result at all for CBA since it enabled the lender to raise far more than what it originally conveyed to investors. CBA ended up printing A$2bn at the same 92/6/2 split across the three tranches.
“We could have printed a smaller deal at 85bp, but even at 90bp we thought pricing was very solid for us, which was why we decided to go for a bigger deal instead,” he said.
The treasury official added that this was a better than expected outcome considering all the volatility markets worldwide have experienced in recent weeks.
While the option was always on the table to wait for the volatility to recede before launching the RMBS, they decided to push ahead as there was no telling if markets would actually improve.
“We were actually looking to launch on August 24, but that was obviously never going to work with markets crashing and we postponed it for a week,” the official said. “Markets looked to have stabilised on Monday [August 31] when we launched it, but it went back to being crazy for the rest of the week, so there really is no telling what is going to happen.’
Tried and tested structure
The 3,885 loans in the collateral pool have an average seasoning of 31 months and an average borrower exposure of A$257,400. While the latter figure is lower than the A$301,159 in Medallion 2015-1, it is still consistent with other deals of the same series, according to a Fitch pre-sale report.
In the same report, Fitch added that most of the characteristics of the asset pool, be it composition of product type, geographic composition as well as concentration, are also in line with previous Medallion deals.
The weighted average loan/value ratio (LVR) is 58.4%, which is more or less the same as the 59.2% of Medallion 2015-1. Floating rate loans make up 83.9% of the collateral pool, with the rest fixed rate loans.
Credit enhancement for the A1 notes comes in the 8% provided by the class B and C portions, while the class B will only benefit from the 2% of the class C notes.
The weighted average life of the A1 portion is 2.8 years, compared with 5.2 years for the class B and 9.3 years for class C. All three tranches have a final maturity of October 2047.
The class A is rated AAA (sf) and the class B A+ (sf) by Fitch and S&P, respectively.