RESIMAC Returns Highlights RMBS Market Resilience

Investor demand for residential mortgage-backed securities (RMBS) appears to have ridden out recent uncertainty, according to sources involved with RESIMAC's second RMBS issue of 2015. On its August 11 pricing date, the four-tranche RMBS deal – RESIMAC Premier Series 2015-1 – offered total volume of A$500 million (US$368.4 million).

The book for the deal saw participation from 14 investors in total according to its leads, J.P. Morgan, National Australia Bank (NAB) and Westpac Institutional Bank. It was primarily bought by domestic investors, at 82 per cent, while real-money investors took 85 per cent and the remaining 15 per cent sold to bank balance sheets.

The whole deal structure attracted attention. “The bottom tranches were strongly oversubscribed but there was also solid demand at the top end,” says Jacqui Fox, Melbourne-based head of securitisation originations at NAB – which also arranged the deal.

“There was a good mix of domestic accounts demand was good overall, off the back of quiet recent issuance in the wake of the Greek debt crisis,” Fox continues. “Offshore demand for Australian RMBS in general has been lower in general, though, due to the basis moving out and some alternative, higher relative-value, supply available to these investors.”

RESIMAC is the second Australian issuer to price an RMBS deal in the second half of 2015. On July 21, ME priced a six-tranche RMBS – SMHL Series Securitisation Fund 2015-1 – with an upsize to A$1.5 billion from A$500 million at launch. The A$1.38 billion class A1 notes on this deal had 2.9-year WAL and pricing of 95 basis points over BBSW.

“Bank RMBS pricing had clearly widened a little following the volatility and uncertainty created during the Greek debt crisis. However, this is one of the tightest prints for RESIMAC since the financial crisis, and the spread differential between bank and some nonbank issuers appears to be narrowing,” Fox says.

She adds that RESIMAC’s latest issue was also a ‘no-grow’ deal, and the limited amount of bonds on offer helped to guide pricing on the class A notes.

Timing consideration

The timing of Resimac’s return was also an important consideration given the gap in issuance following the latest Greek machinations and commentary around the slower-than-expected divestment of RMBS holdings by the Australian Office of Financial Management.

RESIMAC delayed its transaction in light of market volatility. Mary Ploughman, head of capital markets at RESIMAC in Sydney, tells KangaNews that the issuer usually prices a transaction for its Premier series in mid-year, but this was pushed back until August on this occasion while markets recovered. “We were preparing to do this deal prior to the Greek-exit volatility. The market is opening and we see more activity to come,” she says. “It was a domestic deal so there was no concern about missing out due to the northern hemisphere holiday season.”

While it has also been suggested that the apparently lukewarm response to the first two AOFM RMBS auctions may have been a sign of a softer Australian securitisation market, Ploughman argues that the AOFM’s decision not to sell at any price actually adds value to the market. “Secondary pricing has held firm,” she explains. “If the AOFM was looking to dump paper it would have made the market softer, but that is not the case here.”

Fox agrees that the AOFM divestments have not had a material impact on the market, assisted by the manner in which the government debt-management agency has approached the divestment process. As a result, NAB was confident going into the RESIMAC trade that conditions were conducive and that there would be demand for the deal.

Fox now tells KangaNews that there is a robust pipeline for further RMBS issuance, with supply from a range of issuers expected over the next few months.

Source:  |  14 August 2015