St George prices fifth global MBS

Bank achieves tighter than anticipated pricing as overseas support for Aussie MBS continues.

St George Bank, one of Australia's biggest residential mortgage-backed securitization issuers, has priced the fifth global offering from its Crusade program. JPMorgan acted as lead manager on the $1.07 billion deal, with Credit Suisse First Boston and UBS Warburg providing support as co-managers.

St George's latest deal - called Crusade Global Trust No. 1 2003 - is backed by a pool of 12,223 prime mortgage loans with a principal balance of around A$1.8 billion ($1.1 billion). The weighted current loans-to-value of the portfolio is 66.3% with an average seasoning of 14%. Around 79% of the mortgages are concentrated in New South Wales.

The transaction was split into three tranches. Fitch, Moody's and Standard & Poor's rated the $1.05 billion senior notes at the triple-A level. In addition, two subordinated unrated tranches totaling A$35 million will be the equivalent of 5.5% credit support for the senior notes.

Pricing for the senior notes, which have average lives of 2.86 years, was 20bp over three month Libor. That is 4bp outside what St George achieved in March 2002 for the $800 million triple-A tranche on its fourth global deal. However, spreads have moved out since then and at the time of launch last week, secondary spreads on the bank's most recent global were around 21bp.

So St George will no doubt be pleased with how its latest offering priced, especially because it was 3bp inside what Macquarie, one of its main competitors, achieved in January with a $1 billion offering from its PUMA programme.

Conditions for offshore transactions from Aussie issuers continue to be favorable with question marks still hanging over the ability of the domestic market to absorb large deals. An official at St George agreed with that view, adding that pricing benefits could also be gained from tapping the overseas markets.

"If you want to do bigger deals you have to go offshore because currently you would not be able to go much beyond A$500 million on the domestic market," the official says. "Issuers with large portfolios will continue to do US dollar deals, and I think the middle-sized issuers will also tap the Euro markets in the months ahead. When we did our last domestic deal in September [for A$750 million], half the paper placed with European and Asian investors. That ties in with a general flight to quality in the capital markets: foreign investors continue to show good appetite for the Aussie MBS product.

"This deal priced at the tight end of our price range, as we marketed the deal in the low 20's," the official adds. "At the moment, you could probably get levels of around 36-37bp over BBSW on the domestic market. With the way the US$-A$ swap market has come our way in recent months, you are looking at savings of around 4bp, maybe 5bp by doing offshore deals."

The official said that the deal was two times oversubscribed, with 73% going to US accounts, 24% to European buyers and 3% to Asian investors.

Meanwhile, another of Australia's large MBS issuers will imminently tap the US market. Commonwealth Bank of Australia is expected to complete its fifth global deal from its Medallion Trust Program within the next few days. JPMorgan is again acting as lead manager on the transaction, which will comprise $1 billion of three-year senior notes and A$25 million of subordinated paper.

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