Pepper and Liberty give securitisation market a kick along

Bernard Kellerman
Two residential mortgage backed transactions totalling almost A$1 billion are being marketed to Australian dollar investors fixed income investors, with provisional ratings being assigned by Moody's Investors Service and Standard and Poor's.

One of these deals, a A$500 million issue of RMBS notes, consists of a portfolio of Australian prime residential mortgage loans along with non-conforming loans - that is, loans extended to borrowers with impaired credit histories (12.6 per cent of the total number of loans) or made on a limited documentation basis (11.3 per cent of loans), Moody's said in a pre-sale document.

This is the seventeenth non-conforming RMBS transaction sponsored by Liberty, and its first for 2015, noted Moody's.

Among the strengths of the transaction mentioned in S&P's presale report analysis are that the class A1 and class A2 notes benefit from above average credit support provided by the subordinated class of notes (26.0 per cent and 13.6 per cent, respectively). Both the class A1 and A2 notes were provisionally rated AAA (sf) by S&P and the equivalent top rating from Moody's.

The rest of the tranches were not rated by S&P, although Moody's rated all except the final one, notes for $4 million held on its balance sheet by Liberty.

Pepper has also joined the action with a $350 million issue being shown to RMBS and fixed income investors. In contrast to the Liberty deal, for this transaction S&P have assigned preliminary ratings to seven of the eight classes of notes, ranging from AAA (sf) for A1 and A2 notes, down to B (sf) for the F notes.

S&P saw pluses and minuses. The positives in its presale report include geographic diversity, and the subordination of the lower tranches to the main tranches.

Negatives included:

  • The pool contains 59.3 per cent, by current balance, of loans with a current loan-to-value ratio greater than 75 per cent.
  • Self-employed borrowers account for 46.1 per cent of the loans in the pool, and S&P expects self-employed borrowers to experience higher cash-flow variability and, thus, higher loan arrears, making them more susceptible to defaults should there be a downturn in the Australian economy.
  • Full income verification has not been carried out for about 32.9 per cent of the loans in the portfolio