Aussie Market Shifts Further Towards Non-MBS
September 6, 1999
St George Bank has become the first Australian bank to securitize auto loans, putting its weight behind the domestic market's shift towards non-mortgage asset securitization and underlining growing investor acceptance of the trend with by far the biggest deal of its kind yet seen in the sector.
The bank's Crusade Auto Trust No. 1-1999 issued A$571 million (US$364 million) of floating rate notes consisting of three senior Class A tranches, two subordinated lines and a seller note. The structure reflected the tailoring of the Macquarie Bank-led issue to investor demand. It also provided the framework for the credit enhancements that were a key feature of the transaction, given the riskier nature of the underlying assets compared to those that underpinned the market's five previous auto or auto-related deals.
By all accounts, the deal was well received and remained over-subscribed even after St George tightened the pricing.
The senior deck consisted of A$128.5 million of Class A1 notes with a legal final maturity of one year; A$200 million of Class A2 notes, with a three-year final maturity; and A$196.8 million of six-year Class A3 notes.
The B and C subordinated tranches were A$20.4 million and A$12.9 million respectively, each with a six-year maturity; and there was also a A$12.4 million, six-year seller note.
Standard & Poor's, Moody's and Fitch IBCA assigned their top short-term ratings to the Class A1 notes and their triple-A ratings to the medium and long-term senior tranches, while they rated the B and C lines A/A1/A and BB/Ba1/BB respectively. The seller note, which was retained by St George, was not rated.
Rather than approach the market with a pricing range, St George suggested to investors that "there was value" in the A1, 2 and 3 tranches at 17, 27 and 37 basis points respectively over the 90-day bank bill swap rate. The level of over-subscription was not disclosed, but it was sufficient for St George to tighten the pricing on the A2 and A3 tranches by 1 basis point each, to 26 and 36 over the benchmark, at which the deal was closed, still oversubscribed. Pricing on the subordinated notes and seller notes was kept confidential.
Crusade Auto Trust No. 1 was the sixth auto or auto-related transaction to take place in Australia the previous five deals came from non-bank finance companies and is a significant milestone since such deals began to appear late last year. The risk characteristics of Crusade Auto Trust's underlying assets and the structure of its credit enhancements underlined how the market for auto deals in Australia has developed since the first Symphony and Eden Park transactions.
Earlier in August, Bank of Western Australia shelved a US$500 million issue of mortgage-backed Eurobonds because of market conditions, planning to review the situation in September, when the market returns from holiday.
The deal is BankWest's first-ever securitization and the decision to issue first in the Euromarkets is significant as it testifies to the inability of the domestic market to deliver the volume financing Australia's larger securitizers need.
The bank's funding vehicle, Swan Master Trust, had intended to issue US$125 million of Class A1 notes with a weighted average life of one year; US$250 million of Class A2 notes with a 3.3 year WAL and US$125 million of A3 notes with a WAL of 6.2 years.
The deal also included A$22 million of Class B subordinated notes which were to have been issued domestically. Indicative pricing had been at between 16 and 17 basis points above Libor for the Class A1 notes and 29-30 and 33-40 basis points over the benchmark respectively for the A2 and A3 tranches. On the day, however, the market had moved six basis points outside the target. Warburg Dillon Read is the lead manager.
New Boutique Firm Launched
The emergence of new asset classes and high-yield products in the Australian market has prompted three former County NatWest investment bankers Stuart Fowler, Steve Howell and Christopher Graham to launch Basis Capital, a boutique that plans not only to securitize "non-conforming" assets, but to launch and manage funds that would invest in them, too.
Fowler and Graham were at County NatWest when it was acquired by Salomon Smith Barney, and had carriage of a ground-breaking A$42 million deal earlier this year for Permanent Custodians Ltd., a vehicle that securitized mortgages originated by house builder A.V. Jennings.
The deal was significant for being the first MBS in Australia rated below triple-A (the senior tranche was rated single-A) and to dispense with mortgage insurance in favor of deep subordination and excess spread (the assets had loan-to-valuation ratios of 100%).
The deals pursued by Basis Capital will have a similar flavor. The company is said to have a A$300 million mortgage securitization mandate, although the principals refuse to identify the originator of the assets.