Firstmac finds competitive pricing in a wider market
Firstmac Mortgage Funding Trust Series 3-2018 (Firstmac 3-2018) priced at an upsized A$1 billion (US$710.9 million) on 19 October. Westpac Institutional Bank was arranger and led alongside ANZ and National Australia Bank.
Firstmac’s issuance strategy is to focus on specific investor groups with each of its RMBS deals. Speaking at KangaNews’s annual nonbank lenders roundtable discussion in September, Firstmac’s Brisbane-based chief financial officer, James Austin, revealed that its fourth quarter transaction would be targeted at domestic accounts.
Its A$600 million Reg S transaction in March targeted south-east Asian investors, while 95 per cent of its A$1 billion deal in June was placed with Japanese investors. Having launched with indicative total volume of A$500 million, Austin says the domestic bid drove the upsized final volume of Firstmac’s new transaction.
He adds that there was a strong contingent of Japanese investors in the transaction, some of which were participating in a Firstmac RMBS deal for the first time. Timing helped, with Japanese investors coming in to the deal after the Australian Securitisation Forum seminar in Tokyo in September.
The major focus, though, was participation from domestic accounts. Austin tells KangaNews the deal was canvassed with cornerstone investors in advance. “Markets have been more uncertain this year so we wanted to get an idea of the appetite those investors might have. After we did this we broadened the engagement to a full domestic roadshow,” he reveals.
There were varying degrees of scaling across the structure according to issuer data. The A$850 million senior tranche received a small oversubscription, while the A-2, which priced at 155 basis points over one-month bank bills – 5 basis points inside the tight end of price guidance at launch – was at one-and-a-half times oversubscribed.
“The A-2 tranche is always quite price sensitive and it is difficult to know where it will land as it varies from deal to deal,” Austin comments. “Given we have a 15 per cent credit enhancement in the A-1 tranche we tend to have a larger A-2 tranche, so the pricing and demand response was pleasing.”
The senior tranche of Series 3-2018 priced at 122 basis points over one-month bank bills, 10 points wide of the level achieved in Firstmac’s previous RMBS from May this year. Austin says this is a function of a market that has drifted wider for all issuers in recent months and says compared to recent benchmarks the deal was very competitively priced.
Austin says Firstmac’s preference is to use major bank RMBS issuance as a benchmark. However, this was not possible on this occasion given the only recent major bank RMBS deal – priced by Commonwealth Bank of Australia in September – was not a direct comparable due to its revolving period and long weighted-average life.
Instead, Austin says Firstmac marketed its deal based on Credit Union Australia’s recent transaction, which had its senior tranche price at 120 basis points over one-month bank bills. Austin insists wider credit spreads are not yet negatively affecting Firstmac’s competitiveness.
He explains: “We look at our funding cost as a weighted average over the course of time and our weighted-average pricing is coming down. More importantly, it is inside warehouse pricing. This deal isn’t as tightly priced as our recent transactions, but as an issuer you need to be willing to accept the ups and downs of the market and manage through the cycle.”