Macquarie CountryWide CMBS may prove an exception

In what might have been a further sign that the market for securitised assets might be starting to unfreeze, just a little, Macquarie CountryWide launched a A$265 million CMBS issue last week. This is the first CMBS issue since the A$235 million, Liberty Series 2007-1 SME/CMBS Trust, issue in October 2007.

The notes issued via Macquarie CountryWide Finance Pty Ltd. Series 3, comprised two tranches: A$225 million of Class A notes rated AAA; and A$40 million of Class B notes also rated AAA. The scheduled maturity date is September 2012, with a September 2014 final legal maturity.    

The issue is a refinancing of a A$450 million CMBS issue, known as Series MCWF 2006-1, undertaken in December 2006. The scheduled maturity for this transaction was December this year.

However, the pricing of the transaction raises doubts about whether any thawing of the market is taking place at all. The indicative pricing on the Class A notes was 350 to 450 basis points over bank bills at launch, and for the Class B tranche it was 450 to 550 bps over. As it was, the Class A tranche priced at 410 bps over, and the pricing on the Class B tranche was undisclosed.

Being the first such deal of its type since the onset of the GFC it was never going to be easy and in situations like this one, it is the marginal investor that fills the order book and gets the deal done, that determines the pricing. But clearly investors weren't falling over themselves to buy.

This was also a deal involving the securitisation of commercial property, which as a sector is on the nose at the present time, never mind that the underlying portfolio comprises high quality retail property. However, the level of over-collateralisation in this deal was such that the subordinated Class B notes were still able to achieve a triple A rating.

One conclusion that can be drawn from the pricing of this transaction is that the market price (or credit margin) for residential mortgage-backed securities is probably still a long way from where AOFM backed deals are being done. Another conclusion that can be drawn, bearing in mind that the structure of this transaction is very similar to that of a covered bond issue but with much greater over-collateralisation, is that even covered bonds (unless issued by one of the four majors) may fail to achieve economically viable prices, if they were allowed to be issued.   

As for business as usual in the mortgage-backed sector, Greater Building Society priced its A$261.8 million Australian Office of Financial Management-backed issue of RMBS, via GBS Receivables Trust 4, as flagged last week.

Pricing was only disclosed for the short Class A-S tranche and the Class A1 tranche, which was fully taken up by AOFM. The Class A-S notes with a 0.5 year weighted average life priced at 80 bps over bank bills and the Class A1 notes, with a 4.3 year weighted average life, went at 135 bps over.