Firtsmac printed A$500 million (US$362.2 million) across seven tranches of prime RMBS on May 20. Series 2-2016 Firstmac Mortgage Funding Trust No.4 included A$405 million of class A1-a notes with weighted-average life (WAL) of 3.7 years that priced at 150 basis points over one-month bank bill swap rate (BBSW). ANZ, National Australia Bank and Westpac Institutional Bank led the deal.

Previous to this, Firstmac was most recently in the RMBS market in November last year when it issued A$500 million with top-tranche pricing of 117 basis points over BBSW for a WAL of 2.8 years. The nonbank issuer also priced a A$1 billion RMBS in May last year, with a margin of 98 basis points over BBSW on its 2.9 year WAL top tranche.

James Austin, chief financial officer at Firstmac in Brisbane, tells KangaNews that conditions have changed in the past year. “When we issued A$1 billion in June 2015 pricing was very favourable so it made sense to take on a greater amount of funding. Pricing for the new deal was slightly wider while the underlying mortgages themselves had not repriced. In short, although we had surplus demand to facilitate a larger transaction we did not have the financing appetite to match.”

Establishing a benchmark
Australia’s public RMBS market has seen a mixed bag of issuance in recent weeks, with nonconforming and nonmortgage product at least as prevalent as prime RMBS. In fact, the Firstmac deal is just the second new prime RMBS to be issued in just over two months according to KangaNews data – a period in which five deals with alternative collateral have come to market.

However, Austin says finding a price point for Fistmac’s prime deal was not especially problematic. “Firstmac has a high-quality borrower base which means we target the equivalent demographic of a major bank. Considering the good quality of our paper and the high performance of our transactions we aim to place ourselves 15 basis points back from the majors.”

The only major-bank RMBS of the year, Medallion Trust Series 2016-1 issued by Commonwealth Bank of Australia (CommBank) on March 4, priced at 140 basis points over bank bill swap rate – or 10 basis points tighter than Firstmac’s new-issue level. Austin suggests that market-pricing dynamics would likely see a new CommBank RMBS at around 135 basis points over bills if priced now.

Austin tells KangaNews he is relatively pleased with how the RMBS market has settled after a choppy start to the year. “My sense is that investors feel the market is tightening,” he comments. “The healthy market conditions coupled with contracting margins contributed to increased demand for our new deal. Indeed, if we had supplied a ‘skin in the game’, CRD4 compliant transaction I believe we would have attracted a large amount of additional offshore demand.”

Despite the favourable pricing trend, Austin says Firstmac was not tempted to wait for an even more favourable pricing outcome. “Due to two refinancing obligations coming up in June we had to complete the transaction now. I think margins are coming in so, yes, we could have got a better price had we waited – but now was the right time for us,” he says.

Demand factors
Issuer data reveal that the Firstmac transaction saw a total of 14 investors participating, 11 of them domestic accounts. Domestic banks made up 50 per cent of the book, domestic real money 39 per cent and offshore real 7 per cent. Offshore banks added a further 4 per cent of the book.

A key Australian securitisation trend in 2016 has been eased demand from the bank liquidity-book sector, leading to borrowers stepping up their desire to engage with offshore buyers – including in foreign currencies. Resimac printed US$200 million of A1 notes as part of its Resimac Premier Series 2016-1 on April 22 this year, following Pepper Australia which included a US$280 million tranche in the RMBS it printed on March 24.

Although Firstmac did not include any foreign currency paper in its latest deal, Austin confirms that the issuer looks at the inclusion of foreign-currency notes for every transaction. He explains: “The cross-currency basis swap is quite volatile so it is not always possible to add foreign-currency notes. We are keen to explore offshore markets though, and will look to do so in future where possible.”

However, the fact that the new deal was exclusively denominated in Australian dollars did not preclude offshore interest. DBS Singapore (DBS) acted as a co-manager on Firstmac’s recent RMBS deal, the first time the Singaporean multinational has co-managed an Australian-origin RMBS transaction according to Austin. He suggests that the appointment of DBS brought higher than usual demand from Singaporean investors into the trade.

“True south-east Asian money has not been a feature of our RMBS transactions before,” Austin reveals. “It is something we have been exploring and working on for some time, so to hear reports of increased interest from Singapore is pleasing. As time goes on we hope this demographic will represent a larger proportion of demand as we continue to grow our partnership with DBS.”