After a quiet opening to the Australian mortgage backed securitization market in 2003, Bank of Queensland (BOQ) and Greater Building Society (GBS) have set the ball rolling with the launch of mortgage backed transactions.
BOQ will be launching its tenth domestic deal through its REDS programme with a A$400 million ($236.4 million) issue for which Macquarie Bank is acting as lead manager with ABN AMRO as co-lead. GBS, on the other hand, is tapping the MBS market for the first time with a A$300 million deal.
BOQ's deal, called Series 2003-1 REDS Trust, has been split into three tranches. The 0.7 year A$100.5 million and 3.3 year A$292 million tranches have been rated triple-A by both Moody's and Standard & Poor's. In addition, the subordinated A$7.5 million piece, equivalent to 1.9% credit protection for the senior notes, has been rated at the double-A minus level.
The transaction will securitize a portfolio of 2868 prime residential loans worth around A$410 million. The pool has a current average loan-to-value of 70.8% and average seasoning of 8.8 months.
Meanwhile, GBS's deal is split into two tranches: A$294 million of triple-A rated senior notes and A$6 million of double A minus rated subordinated bonds, equivalent to 2% credit protection for the senior tranche.
The underlying pool consists of 2666 loans worth close to A$300 million, which have a current LTV of 76.8% and average seasoning of 28 months.
According to market gossip, indicative price talk for the BOQ deal is between 36-39bp over BBSW and 40-42bp for the GBS deal, which has surprised some bankers. "The assets are fairly similar, as are the average lives, and I think 39-42bp is a more accurate reflection of where the market is right now," says one banker. "Secondary spreads for shorter two-year MBS paper is around 36bp, and the very best issuers like St George or Interstar might be able to price around that level. But the last deal of 2002 [Progress Trust 2002-1 via SG] priced at 43bp over for 4-year triple-A paper, and spreads haven't moved in too much since then.
There is also continuing concern that the ability of domestic investors to absorb all the MBS paper issued has diminished, which makes spread contraction seem unlikely at this time. One fear in particular - and this is a global trend - is that selling paper into asset backed conduits will become increasingly difficult because of more restrictive accountancy rules.
A banker involved on the REDS deal, however, remains hopeful that pricing will be within the deals completed late last year. "At the end of last year, there was a glut of issuance and that was reflected in wider pricing," the banker says. "This is the first deal this year, so we are hopeful that it will price inside the current margins. As well as domestic investors, the issue has attracted very good interest in Europe and Asia, and we expect it to price early and be oversubscribed."
The banker added that 10% of the book is expected to come from Asian buyers.