Australian non-conforming lenders returned to the market this week for the first time since November 2002. Newcomer Pepper Home Loans priced its debut transaction on Wednesday, while Australia's oldest non-conforming issuer, Liberty Financial, launched the sector's first international deal. Pepper was set up in 2001 by the former management of the UK's Future Mortgages, which was sold to Citigroup. ABN Amro split the A$134m deal into six tranches, including an undisclosed amount of triple-A rated one year ' Z' interest only notes. The A$1.9 year senior notes, rated triple-A by Moody's and Standard & Poor's, came at the wide end of price talk to offer a margin of 62bp over one month BBSW. In comparison, the most recent non-conforming mortgage deal, Bluestone Group's A$200m deal in November, came at 50bp at the one year level. But Bluestone has a slightly longer track record than Pepper, and that deal was the firm's second securitisation. Bluestone's 2.5 year fixed rate tranche gave a spread of 60bp over swaps. Four subordinated tranches were offered to investors. The A$9.1 single-A tranche was priced at 150bp over BBSW, while the A$7.1m triple-B tranche came at 250bp over. A A$3.8m double-B tranche and an unrated A$1.9m piece were privately placed with undisclosed pricing. All but the unrated tranche have average lives of 3.8 years. The latter averages 4.9 years. Legal maturity is in March 2034 and there is a call option in March 2008. "It was good to get the deal away in challenging circumstances," said Rowan Harry, director, securitisation at ABN Amro in Sydney. "The demand was mainly local, speciality funds came in for the lower rated tranches and banks and fund managers took the higher rated ones." The notes are secured on a pool of 1,101 mortgage loans, with an average current loan to value ratio (LVR) of 74.4%. Average seasoning is 7.7 months. As ABN was building the books for Mobius, Macquarie Bank launched the sixth securitisation for Liberty Financial, Australia's leading non-conforming lender. The firm is seeking to diversify its investor base. Liberty Series 2003-1 Trust will be the first non-conforming securitisation to be issued offshore, containing a dollar tranche and a euro tranche. Macquarie, which will price the deal on Monday, structured the deal according to investor interest. A $100m senior tranche, averaging 2.56 years, will be offered to European and Asian investors, while a A$36m equivalent junior tranche with an average life of 3.3 years will be offered privately in euros. In addition, A$150m 0.84 year and A$45.9m 2.56 year senior tranches will be placed domestically. The senior notes are rated triple-A by Moody's and Standard & Poor's, while the junior notes are privately rated. The legal maturity is in April 2030. "We have had a very encouraging response," said Kevin Lee, division director, debt markets at Macquarie in Sydney. "People are curious about it, and they realise that in many ways it is better quality than UK non-conforming.." Price talk for the 0.84 year tranche is in the mid-30s, and for the 2.56 year tranche in the mid-40s. The dollar tranche should come between 48bp and 51bp over Libor. The pool comprises 2,060 mortgages with an average LVR of 76.5%. Average seasoning is only 3.7 months. The highest concentration is in Victoria, which makes up 36% of the portfolio.
March 28, 2003
