RedZed treasurer Rick Li
Conditions in the Australian securitisation market have become more challenging for issuers, following the liquidation of holdings by overseas investors that have shifted their focus to the UK and European markets where spreads have widened significantly more than in the local market.
In a recent local issue of residential mortgage-backed securities, RedZed Lending Solutions, raised A$500 million in a non-conforming deal settled last week.
RedZed paid a margin of 115 basis points over the one-month bank bill swap rate on the A-1-S notes, worth $100 million and with a weighted average life of 0.7 years.
Pricing on the A-1-L notes, worth $275 million and with a weighted average life of 2.3 years, was 175 bps over one-month BBSW. Pricing on the A-2 to F notes ranged from 250 bps to 750 bps.
RedZed Treasurer Rick Li said the overall margin increase, compared with its previous deal, was around 100 bps, with a higher benchmark rate on top of that. The issue was not upsized from its target at launch.
Li said getting the transaction away was “a struggle”. A number of regular investors passed on the deal.
“We have seen at least one large UK investor selling local RMBS to generate cash for investment in the European market where spreads are better. This means there are well-seasoned secondary market securities with better yields, and some investors are buying those in preference to new issuance.”
Li said there is no investor concern about the collateral, which is performing well.
“Our 30-days arrears rate is 80 bps, which is comparable with prime mortgages. Our book is 95 per cent clean credit and mainly loans to self-employed borrowers, and that sector has been robust.”
RedZed has originated a total of $6.5 billion of loans and its book is currently around $3 billion. It has been issuing RMBS since 2011.
“I would love to do one more issue this year, if I can find the investors,” Li said.