New RMBS Seeing Some Success Abroad
A forthcoming A$543.5m (US$503.95) securitization of mortgages backed by homes in Australia shows another sign of new issuance for residential mortgage-backed securities (RMBS) gaining traction overseas, indicating a greater appetite for risk from global investors. Comparably, the domestic interest for a new RMBS would seem to be lagging other large markets abr0ad though reports are surfacing of new US RMBS deals in the works, with possible issuance possibly arriving during the first half of 2010. In the Australia space, credit-rating agency Standard & Poor's (S&P) assigned preliminary ratings to three classes of prime RMBS notes, which will be issued by Perpetual Trustee Co. as trustee of Progress 2010-1 Trust. The deal is expected to be placed with investors by the end of this week. S&P rated the Class A tranche, worth A$500m, triple-A. The Class AB tranche, worth A$30.5m, was also rated triple-A, while the A$13m Class B tranche received a double-A minus rating. Australian lender AMP Bank originated the prime residential mortgages underlying the RMBS. Credit support on the classes includes note subordination and mortgage insurance, S&P said. The classes bear mortgage insurance covering 100% of the face value of all loans, accrued interest and reasonable costs of enforcement, which S&P said should withstand the stresses applied in the ratings methodology. "Our expectation that the various mechanisms to support liquidity within the transaction are sufficient under our stress assumptions to ensure timely payment of interest," as well as ultimate payment of principal for all classes of notes by December 2040, S&P said in a statement late last week. When the deal prices, it will be the first RMBS issued under the Australian government's Australian Office of Financial Management (AOFM), the agency that manages Australian government debt and cash balances and invests in financial assets. The AOFM invests in RMBS under a government program to facilitate competition among mortgage lenders in the country. The Australian RMBS notes follow recent European issuance that indicates new securitizations are helping provide liquidity in the global financial market. New RMBS notes rated in September 2009 in the UK, backed by mortgages originated by Halifax and Bank of Scotland, both wholly-owned subsidiaries of HBOS, which itself is a subsidiary of Lloyds Banking Group, are said to be laying the foundation of a slate of new issuance for 2010. As is often the case, a few deals are needed to lay the groundwork for a more vibrant market, in order to create a benchmark for upcoming platforms. The note issuance is valued at £4bn (US$6.4bn) for “modeling purposes,” according to a statement by Fitch Ratings. Then, in October 2009, UK mortgage lender Nationwide launched Silverstone 09-1, a new RMBS deal that would include a fixed-rate seven-year tranche, according to analyst reports out of Europe. Further, spreads in UK market continue to tighten favorably, with triple-A RMBS paper expected to trade soon in the 100 bps mark. According to French investment bank, Société Générale, the average spread of triple-A five year notes hit 110bps, tightening from 150bps the week before. "Although securitization cannot be driven by market levels alone, as there is always some delay between structuring and issuing, we understand that mandates signed last year had their issuance dates postponed in order to come to market early this year," said Jean-David Cirotteau, RMBS analyst for Société Générale. "Currently strong technicals should support the first issuance in primary soon." Write to Diana Golobay.