GE loans work for Pepper

When Pepper Australia bought GE Capital's Australian mortgage portfolio in 2011 it was a very poorly performing book, with an arrears rate (overdue by 30 days or more) running at above 10 per cent.

Pepper's group treasurer, Todd Lawler, said then it was worth taking a risk on the acquisition because it would give Pepper the scale and the resources to diversify its business, which had been focused on non-conforming mortgage lending before the financial crisis.

Two years on, about half of those loans are still outstanding and Pepper has got the arrears rate down to four per cent.

Lawler said: "We collect like a non-conforming lender. Large institutions have a different focus."

"The book is continuing to improve, which is a great result considering it is a run-off book."

The acquisition gave Pepper the opportunity to build a servicing platform (it brought a number of GE people on board) and it has gone on to acquire other portfolios.

It has also moved into auto and equipment leasing.

And, because it has been able to get the GE book into shape, Lawler said Pepper had earned credibility with the banking and investor communities.

On Friday, Pepper priced the second securitisation of mortgages from the GE portfolio. Its first securitisation was last November, when it paid 145 basis points over the bank bill swap rate on the top tranche.

For this deal, Pepper Prime Trust 2013-1, pricing on the A$183 million Aa tranche, which has a weighted average life of 2.1 years, was 115 basis points over swap.

The issue included US dollar notes. The US$250 million Au1 tranche, which has a weighted average life of one year, was priced at 35 basis points over Libor.

The A$25 million AB tranche, which has a weighted average life of 4.5 years, was priced at 210 bps over swap.

The $15 million B tranche, which has a weighted average life of 4.5 years, was priced at 315 bps over swap.

Pricing on the A$5 million C tranche was not disclosed.