The transaction is split into five floating rate tranches - three senior classes of which are rated triple-A by Moody’s Investors Service. The Ñ18.1 billion A1 notes have a 1.62-year average life and carry a spread of 15 basis points (bp) over one-month Japanese Libor; the 4.2-year Ñ5 billion A2 notes have been priced at 17bp over; and the Ñ5 billion A3 tranche at 20bp over with 5.99-year average life.
Additionally, the two subordinated pieces - a Ñ700 million A2 rated B tranche and Baa2 rated Ñ600 million C tranche - both carry 6.62-year average lives and have been respectively priced at 47bp over and 78bp over one-month Libor.
The Japanese securitization market has had a fairly quiet start to 2001 and an official at the bank believes that scarcity of supply means that the deal has benefitted from domestic investors' desire for triple-A paper. “The deal went very well and was significantly oversubscribed with pick-up from domestic banks and insurance companies,” an official says. “We initially thought there would be many more ABS deals launched this year, so it was well received because investors had time to examine its benefits, including the high quality of underlying assets and an innovative structure mitigating risk.”
According to the official, investors liked the fact that the deal offered floating rate paper. “Firstly, we structured in a swap agreement to hedge interest rate risk,” she explains. “Also, because all the notes are floating rate, investors shouldn’t be worried about duration risk, which they might have been with fixed rate paper.”
The official remains cautiously optimistic that the Japanese residential MBS market will finally start to see a steady flow of issuance this year, having previously been viewed as a relatively dormant asset class. “Of course there is the Government Housing Loan Corp deal which everyone has been talking about,” she says. “I think the residential market will grow, but it’s still quite a new asset so it’s a bit early to say how much by.”
The Government Housing Loan Corp - the state-owned mortgage lender - will launch a high profile Ñ50 billion MBS deal this year. Local bankers are hopeful that a deal issued by the dominant company in the mortgage market will give the MBS sector the kick-start it has needed for a long time.