St George to continue MBS Crusade

Australian bank launches fifth global mortgage-backed securitization.

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

According to a source at St George, the deal is expected to price on Friday although he declined to speculate on indicative pricing.

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 has been split into three tranches. Fitch, Moody's and Standard & Poor's have provisionally 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.

According to the St George official, there are two reasons for opting to do a global rather than a domestic deal. "The first consideration is to increase investor diversity but we also anticipate some pricing benefits," the official explains. "But I would say it is especially important to increase the investor base at this time."

That line of thinking is consistent with the idea that Australian issuers have to tap the offshore markets if they want to raise larger amounts of money due to the inability of the domestic market to absorb all the RMBS paper issued. Accounting restrictions on conduits - long the biggest securitization investor group in Australia - is the primary reason for that situation.

As far as pricing goes, most market observers still see cost savings of around 2-3bp by going offshore, as domestic spreads remain at historically high levels. However, it is highly unlikely that St George will able to achieve anything close to the pricing of its last global deal in March 2002.

On that transaction, the launch price for the A$880 million of triple-A notes was 16bp over Libor. However, current secondary spreads for the notes are close to 21bp.

St George would still probably view anything similar on its latest deal as a success. When one of its main MBS competitors Macquarie tapped the US dollar market with a $1 billion offering in January, the notes priced at 23bp over Libor.

Prior to the upcoming deal, the Crusade programme has raised around $5.65 billion through four globals, three domestic deals and two Euro issues.