Disappearing debentures

Debentures, while a pretty outdated investment class heading into the credit crunch, have withered further as a savings option over the last two years.

One estimate, from ASIC, of the amount of money invested in this form of savings suggests debentures declined to $16.9 billion at December 2008 and down from $34 billion in mid 2007.

The market declined pretty rapidly over the last half of 2008. There were 109 issuers of debentures at the end of last year.

The Australian Securities and Investments Commission published the estimate as part of a review of a sub-set for this market, being unlisted and unrated debentures.

Key factors are of course the shift in saver behaviour bought about by the global downturn, banking crashes offshore and the introduction of the government guarantee on bank deposits.

In the narrower market segment that is the subject of its detailed review ASIC estimated that the pool of funds invested in unlisted and unrated debentures declined by more than a third to less than $5 billion over the period of the credit crunch.

From around $8 billion invested in early 2007, the pool declined to $6.7 billion by March 2008, and then to $4.7 billion by September 2009.

The number of unlisted, unrated debenture issuers - and which are typically finance companies and mortgage trusts - declined by one fifth to 63 issuers between March 2008 and September 2009, the ASIC review shows.

Over the review period, 15 issuers were placed into external administration, ASIC said, with total debentures on issue of $912 million.

As of September 2009 ASIC said there were 63 issuers of unlisted, unrated debentures, 17 fewer than a year earlier.

On top of the 15 failures, five issuers repaid their investors or converted their debentures or merged with another issuer. Three new issuers entered the market.