ME securitisation an expensive precedent

ME Bank upsized its SMHL Securitisation Fund 2010-2E RMBS issue to A$1.2 billion, from A$980 million; but it may have set an expensive precedent with the pricing of the US$335 million of Class A1 notes.

The 'AAA' rated notes with a weighted average life of 1.54 years priced at 120 basis points over Libor. The A$363 million of 'AAA' rated, Class A2 notes with a WAL of 1.56 years, priced at just 105 bps over bank bills.

Without even allowing for the basis swap, the pricing disparity between the two tranches suggests either the great international investor demand for Aussie RMBS that has been touted in recent weeks wasn't that great or domestic market pricing of RMBS is very cheap.

The A$383.3 million, 'AAA' rated Class A3 notes were presumably taken up in full by the Australian Office of Financial Management. The notes have a WAL of 5.68 years and priced at 110 bps over bank bills.

The 'AAA' rated Class AB tranche totalled A$33.6 million and the 'AA- ' rated Class B notes totalled A$21.65 million. Both tranches have a WAL of 7.91 years.