Australian Securitisation Journal Issue 16 (June 2019) by Australian Securitisation Forum ASJ

Incorporating Australian and New Zealand Securitisation and Covered Bonds >> Issue 16 â&#x20AC;˘ 2019

Pulling the threads together Benchmark change is coming to Australasian securitisation. Market participants are working on lasting solutions.

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CONTENTS

2 ASF WELCOME 4 COLUMN 6 ROUNDTABLE 16 Q&A 18 FEATURE 24 FEATURE 26 Q&A 30 ROUNDTABLE 38 ISSUER PROFILES

Sarah Hofman, chair, Australian Securitisation Forum

Incorporating Australian and New Zealand Securitisation and Covered Bonds >> Issue 16 • 2019

ASF MANAGEMENT COMMITTEE Chair Sarah Hofman Deputy Chairs Belinda Smith David Ziegler Treasurer Heather Baister Chief Executive Officer Chris Dalton asf@securitisation.com.au +61 2 8243 3900 www.securitisation.com.au

ASJ PUBLISHED BY

www.kanganews.com Chief Executive Samantha Swiss sswiss@kanganews.com Head of Content and Editor Laurence Davison ldavison@kanganews.com Senior Content Manager and Deputy Editor Helen Craig hcraig@kanganews.com Staff Writer Matthew Zaunmayr mzaunmayr@kanganews.com Editorial Assistant Chris Rich crich@kanganews.com Head of Commercial Jeremy Masters jmasters@kanganews.com Sales Support Officer Yazzy McGuid ymcguid@kanganews.com Design Consultants Hobra Design www.hobradesign.com ISSN 1839-9886 (print) ISSN 2207-9025 (online) Printed in Australia by Spotpress.

CONTENTS OF THIS MAGAZINE IN ANY FORM IS PROHIBITED WITHOUT THE PRIOR CONSENT OF THE COPYRIGHT HOLDER.

Heather Baister, partner at Deloitte, discusses the implications of a major reporting overhaul. National Australia Bank takes the temperature of Australian securitisation with key investors in the US and Europe.

Resimac talks funding strategy, the consequences of listing for investor disclosure and growth ambitions in a more challenging property market. Securitisation is at the forefront of IBOR transition in Australia. Learning from international developments will likely prove crucial to a successful process. Outsourcing trust management can pay off, says BNY Mellon, especially for firms that are just starting their capital-markets journey.

A close look at Chinese securitisation, including access methods for international investors, growth analysis, and key legal and structural issues, with Macquarie Bank and King & Wood Mallesons. The Australian Securitisation Forum’s Women in Securitisation subcommittee and KangaNews host a discussion on the market’s big issues.

38 AMP Bank ANZ Banking Group Australian Finance Group 39 Auswide Bank Bank of Queensland Beyond Bank 40 Bluestone Group Citi Australia Columbus Capital 41 Commonwealth Bank of Australia Credit Union Australia Firstmac 42 FlexiGroup Heritage Bank IMB Bank

43 ING Bank (Australia) La Trobe Financial Latitude Financial Services 44 Liberty Financial Macquarie Group 45 ME MTF Finance MyState Bank 46 National Australia Bank People’s Choice Credit Union P&N Bank 47 RedZed Lending Solutions Resimac Suncorp Group 48 ThinkTank Westpac Banking Corporation

FOREWORD

FROM THE CHAIR

t is my pleasure, as the new chair of the Australian Securitisation Forum (ASF), to introduce this edition of the Australian Securitisation Journal. As at May 2019, primary issuance for the year in the Australian and New Zealand securitisation markets has continued at a similar pace to 2018. The issuance of covered bonds continues to feature as part of the annual funding plans of a number of banks, while the New Zealand market has also seen new residential mortgage-backed securities and asset-backed securities (ABS) issues in the early part of this year. The ASF was pleased to see that legislation to establish the Australian Business Securitisation Fund was passed by the Australian parliament in April. This new, A$2 billion (US$1.4 billion) initiative to help SMEs access competitive finance and grow the ABS market’s capacity to fund small businesses will commence in July 2019 and will be administered by the Australian Office of Financial Management. ASF subcommittees are engaged in progressing deliberations on several matters relevant to the efficient operation of the Australian securitisation market. These include discussion around the global reform of benchmarks for floating-rate securities, as well as the associated local consideration of the bank-bill swap rate (BBSW) as a benchmark for Australian RMBS and ABS (see p18). The ASF plans to conduct an industry-wide consultation in the third quarter of 2019 to canvas views on the longevity of one-month BBSW for securitised issues, and which alternative risk-free benchmarks could suit the Australian securitisation market. The ASF is also discussing the merits and need for Australia to adopt a simple, transparent and comparable (STC) framework for Australian securitisations. The industry is watching the implementation of the EU’s standardised-approach framework. The ASF is also monitoring the April 2019 introduction of STC regulation by Japan’s Financial Services Agency. The ASF is working with its nonbank members to review the Australian Prudential Regulation Authority’s proposed changes to reporting requirements for securitisation vehicles under the Financial Sector (Collection of Data) Act, which are intended to capture information on lending volumes from the nonbank sector. The ASF, through its New Zealand market subcommittee, continues to engage with the Reserve Bank of New Zealand (RBNZ) in relation to its proposal to establish a “high-grade” residentialmortgage collateral standard for liquidity-management purposes. The RBNZ continues to work with the industry to develop a collateral standard and associated reporting infrastructure that may assist to increase interest and investment in securitisation as a funding alternative in New Zealand. The ASF continues to review its professional securitisation education programme. In addition, the ASF coordinates promotional activities for the market by holding investor and member briefings and seminars locally and offshore, and by participating annually in global conferences – including the Structured Finance Industry Group conference in Las Vegas, the Global ABS event in Barcelona, the KangaNews New Zealand DCM Summit in Auckland and the Asian Structured Credit Summit in Hong Kong. ASF membership continues to increase in 2019. More than 120 Australian and New Zealand market participants are now part of the ASF community. In 2019, the ASF will continue to support the securitisation market in Australia and New Zealand by providing the industry with a forum to discuss and form industry positions on regulatory, policy and market matters. The ASF is committed to promoting the market to investors and policymakers, and to advancing the professional standards of the industry through a comprehensive suite of educational courses.

SARAH HOFMAN

CHAIR, AUSTRALIAN SECURITISATION FORUM 2 · Australian Securitisation Journal | Issue 16_2019

COLUMN

REPORTING LESSONS

For many, 1 January 2018 was a transition date to the most significant changes to accounting standards since the introduction of Australian equivalents to international financial reporting standards (IFRS) in 2005. Heather Baister, partner at Deloitte in Sydney, looks at the lessons learned.

ecember 2018 was for many entities the first fullyear reporting period under the new standards: AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers. As we approach the June reporting period, it is a pertinent time to reflect on the lessons learned from those that have already been through this significant change in reporting requirements.

Many financial-services institutions have significant contracts with customers that required assessment at December 2018. Areas of complexity and judgement included identifying separate performance obligations including distinct goods and services, as well as considering whether these are satisfied over a period of time or at a point in time. Such determinations could have a material impact on the revenue-recognition profile for companies. For companies without the resources to have a dedicated accounting-change team, managing the detailed assessment of AASB 15 on top of the complicated modelling and disclosure requirements of AASB 9 has proved challenging. We recommend ensuring a focus on AASB 15 as well as AASB 9.

DISCLOSURES

Disclosure levels for both AASB 9 and AASB 15 have varied significantly across the industry, and indeed globally. AASB 15 in particular is subject to great variation in level of disclosure by financial-services entities, especially those for which interest income is the dominant revenue stream. The transition and year-end disclosures for both standards are significant and absorbed considerable time for many AASB 9 AND 15 December-reporting entities. We strongly recommend AASB 9 represented a fundamental change to accounting leveraging the available disclosure guidance as soon as possible for financial instruments, in particular impairment. This and working with auditors ahead of year-end. particularly affected providers of credit. The impact of the Achieving a balance between the materiality concept and new expected credit loss (ECL) model was a particular focus in these detailed disclosures can be a significant challenge. The preparation for AASB 9 and has critical focus should be on: been the subject of significant ■ Ensuring the relevant transitional “We should all be supportive of a discussion and focus by financialrequirements have been considered reporting framework that enables services entities. and key decisions and judgements Generally, industry participants greater clarity for the users of communicated in an easy-tofinancial statements.” appreciated the complexity and understand and relevant manner. scale of the change and made ■ Revising accounting policies to significant investment in adoption of the new standard. communicate the impacts of the new standards in a way that The classification and measurement aspects of the standard clearly articulates the nature of the entity’s business. tended to have a less material impact on transition but created ■ Including only disclosures that are relevant, discuss material specific challenges in certain circumstances. For example, as matters and contribute to users’ understanding of the entity’s a result of applying the specific business-model and cashfinancial performance and financial position, the risks the flow requirements tests within AASB 9, some financial assets entity faces, the nature of critical judgements and estimates that were previously measured at amortised cost flipped into made, and how the entity’s business model results in the fair-value accounting – with the associated complexity in accounting outcomes reflected in the financial report. valuations and disclosures. ■ Ensuring the impacts of the new standards have been AASB 15, meanwhile, has generally been subject to less reflected throughout the financial report and are consistent analysis by the financial-services industry compared with with other disclosures made in the financial statements and AASB 9 as interest income is covered under AASB 9. However, broader annual report. AASB 15 is complex in its application. AASB 15 involves a fiveWhile this is a year of significant transition with step process to the assessment of revenue recognition which associated time and cost implications, the industry should continues to be an area of regulator focus. be supportive of a reporting framework that enables greater These steps are identifying the contract with the customer, clarity for the users of financial statements. identifying performance obligations, determining transaction Going forward from June 2019, we believe the emphasis price, allocating that price to performance obligations, and must move to embedding these new standards, and the recognising revenue as and when the performance obligation operations and controls associated with them, so they become is satisfied. an enabler for businesses. ■

4 · Australian Securitisation Journal | Issue 16_2019

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COPUBLISHED ROUNDTABLE

Round the world on Australian securitisation In May, National Australia Bank (NAB) hosted a call for investors in Australian securitisation from the domestic market, Europe and the US. In a more challenging period for the Australian housing market, investors say they retain a baseline level of confidence in asset quality and transaction structures. PARTICIPANTS ◆ Francisco Paez Head of Structured Finance Research METLIFE ◆ Jean-Sebastien Paley Senior ABS and Covered Bond Portfolio Manager INTERNATIONAL FINANCE CORPORATION ◆ Sarah Samson Head of Securitisation Origination NATIONAL AUSTRALIA BANK ◆ Cedric Tchaban Portfolio Manager HSBC GLOBAL ASSET MANAGEMENT ◆ Rory Watson Director, Debt Markets Portfolio and Underwriting NATIONAL AUSTRALIA BANK MODERATOR ◆ Laurence Davison Head of Content and Editor KANGANEWS

6 · Australian Securitisation Journal | Issue 16_2019

RELATIVE VALUE Davison What are investors’ views on Australian

securitisation as we approach the mid-point of 2019, from a risk-return perspective and on a relative-value basis? ◆ PAEZ

I see Australian securitisation as having favourable risk-adjusted relative value. We are watching a number of moving parts closely from a risk standpoint. But we continue to feel that the compensation is adequate for the level of risk we are taking. Comparing Australian dollar denominated, triple-A rated Australian securitisations with corporate bonds, we would need to look at lower-rated corporate deals or go further out the yield curve with an additional degree of interest-rate risk to achieve the same yield. US dollar denominated Australian securitisations are also attractive versus many US securitisations in the same rating category. The risk profile of securitisations coming out of Australia is reasonable given the underwriting standards are sound and generally within a stable range. We are observing developments in the Australian housing market, although these are somewhat tempered by the overall economy. By this measure Australia still seems to be progressing reasonably well. ◆ PALEY We also see the Australian risk-reward dynamic as broadly okay – particularly in comparison with other jurisdictions. Our mandate is focused on the securitisation space so our comparison is with securitised markets like Europe, where QE continues to have a major impact, the UK, where we continue to have a significant tail risk in the form of Brexit, and the US, where spread levels are tighter for samequality – albeit more liquid – assets. In this light, Australia appears still to offer decent value. We focus on developments in the housing market. Of particular interest is the ongoing house-price correction in the major cities and the growing level of consumer debt. We were also monitoring the noises the Labor Party was making around negative gearing. If these had come to fruition, they could have had a further negative impact on the Australian housing market. We have seen a negative impact on house prices from similar policy changes in the Netherlands and the UK. Liquidity remains a problem in the secondary market, where spreads tend to be wider than primary. We have to factor this into our relative-value assessments. ◆TCHABAN We look at Australia through a global benchmarking lens within structured finance. All our mandates are focused on securitised credit so we do not benchmark against, for instance, corporate credit. In Australia we focus almost exclusively on residential mortgage-backed securities (RMBS) and, despite the housingmarket headlines, we can find attractive RMBS opportunities.

As an example, we receive roughly the same return in Australia as we would from one level lower in the capital structure in UK deals. We are finding less value in continental Europe at the moment, notably because of the spread distortion QE continues to have – and could have again in the future. In Australia, we find more of what we used to find pre-crisis in the UK or Europe, which is high-street lenders offering full capital structures backed by prime RMBS pools. In the Eurozone, large lenders tend not to issue much securitisation because they can fund much cheaper outside RMBS – and when they do they issue only senior notes, for funding purposes. In the UK, high-street lenders typically also place only senior tranches with the market. One attractive feature of the Australian market is that we can access high-street-grade mezzanine positions on top of the broad range of specialist lenders offering full capital structures in the prime and nonconforming space.

From a relative-value perspective, even domestically, Australian securitised product is thus very attractive – despite the property-market headlines the other investors have alluded to. The transactions we have seen this year to date have been very well supported. Part of the reason is that investors can get an allocation. We have liked Australian securitisation for a considerable time and we continue to like it.

Davison It is probably a slightly different

◆ SAMSON

question for an Australian bank book, as the cross-border relative-value comparison of investment options is presumably not such a relevant issue. However, there is still presumably an assessment of the appeal of different domestic asset classes. Where does Australian securitisation fit in for NAB at the moment? ◆ WATSON

Rightly or wrongly, participants domestically benchmark major-bank RMBS product against Australian major-bank senior-unsecured issuance and apply a historical relationship. In the past this relationship has largely been uniform despite distinct product differences – which include secured versus unsecured collateral and quarterly rather than one-month rolling product. However, in line with markets around the world, the Australian unsecured credit market has tightened dramatically over the course of 2019. The Australian RMBS market has also tightened but not to the same degree. This means the spread between somewhat like-for-like products has widened quite substantially. In fact the spread has widened quite dramatically once you factor in moves between the one- and three-month basis swap.

Davison Investment from outside Australia has

been important for Australian securitisers for a long time. Certain issuers, specifically those from the nonbank sector, have ramped up their transaction volume considerably in the last couple of years as their businesses have grown. Where are issuers finding demand at the moment and do orderbooks reflect the view that Australia continues to be an attractive investment proposition? Offshore investors are certainly becoming increasingly important for Australian securitisers and I agree that they are particularly relevant to the nonbank space. These firms have ramped up origination as a result of a structural shift in the market that has seen authorised deposit-taking institutions (ADIs) tighten their lending criteria. Another phenomenon we have seen in Australia is significant product innovation, including the emergence of near-prime product. While this is currently a small segment in the overall picture, it means the aggregate funding requirement has increased materially. At the same time, the Australian domestic bond market has a very low allocation to fixed income compared with the rest of the world. Therefore, the investor-diversification piece is critical for issuers. This is not just a nonbank story. ADIs value this diversification as well. This is to pick up on Cedric Tchaban’s point, because some of the regulatory changes we have seen – specifically around the Australian Prudential Regulation Authority (APRA)’s APS 120 – make securitisation transactions a good way for banks to seek capital relief. This means full capital structures are being offered. The ability to attract global mezzanine investment has been very important. This is why more issuers have started to look at

“WE ARE WITNESSING A SOFTENING IN THE HOUSING MARKET IN A BROADLY SUPPORTIVE MACROECONOMIC ENVIRONMENT. HENCE WE ARE PROBABLY GOING TO SEE ONLY A MODERATE FEEDBACK LOOP, AS LONG AS UNEMPLOYMENT OR GDP GROWTH DO NOT DETERIORATE SIGNIFICANTLY.” JEAN-SEBASTIEN PALEY INTERNATIONAL FINANCE CORPORATION

COPUBLISHED ROUNDTABLE

The rise of ESG-labelled product THE AUSTRALIAN SECURITISATION MARKET HAS DIPPED ITS TOE IN LABELLED GREEN ISSUANCE, ALTHOUGH JUST A HANDFUL OF DEAL TRANCHES HAVE COME TO MARKET SO FAR. DEVELOPING SPECIFIC MANDATES APPEARS TO BE VERY MUCH A WORK IN PROGRESS FOR GLOBAL INVESTORS, TOO.

Davison How do environmental, social and governance (ESG) considerations fit into investor portfolios? We have seen the emergence of green-labelled securitisation from Australian issuers – do investors have any incremental interest in this type of product relative to standard bonds? PALEY As an issuer of bonds

International Finance Corporation is very focused on ESG considerations. As an institution we are very vocal

about climate change and, on the structuring side, we have been able to work towards ESG standards for our clients. However, as an investor I must admit that we are not there yet. We have been creating an ESG framework over the last couple of years but the progress has been relatively slow to date. ESG considerations don’t move the dial for the purpose of treasury investments. We are working on this and are aware that we need to migrate to integration of this framework as an

institution. But for now we have no reason to treat a green bond and a regular bond differently. PAEZ We always try to be a ‘thoughtful’ investor and have tried to behave responsibly in the ways in which we deploy capital. In recent years we have also become a signatory to the UN Principles for Responsible Investment. ESG considerations are a growing focus for us at MetLife. From this perspective, we welcome the Australian initiatives we have seen in bringing ESG compliant bonds.

“We have certainly seen incremental bid in transactions where there has been a certified green tranche. I think there will be more product as the criteria around it continue to evolve – which I think it will soon for mortgages.” SARAH SAMSON NATIONAL AUSTRALIA BANK

bespoke structures to attract offshore investors as well as offering transactions in US dollar 144A format and in euros. Foreign-currency issuance is more expensive, but issuers are focused on diversification and doing the utmost to attract investors across the globe.

HOUSING MARKET Davison The fact that Australian house prices

have been declining for more than a year – and there does not appear to be any imminent sign of the bottom being reached – has already been alluded to. At what point would investors start to be concerned from a securitisation perspective – or are they already? ◆ TCHABAN

Of course it is a cause for concern because the fall in house prices is quite dramatic. Historically, when we have seen such dramatic moves in house prices they have generally been triggered by an economic shock. What is all the more disconcerting this time is these drivers are not immediately apparent. If there was a further macroeconomic shock it could bring about considerably more cause for concern. 8 · Australian Securitisation Journal | Issue 16_2019

We closely track house-price indices for some sign of stabilisation – and we aren’t seeing any at the moment. It seems like there is still some way for the big cities to go before affordability is restored, though the picture is more positive outside the big cities. All we can do is adjust around this. In this context, we have moved higher in the capital structure, we prefer triple-A rated tranches and better-established sponsors, and we like prime pools. All in all, we are trying to be more conservative right now. We might seriously pause for thought if we started to see feedback from house-price decline into the real economy, or higher defaults or arrears. This could lead us to watch the situation developing before we re-engage.

Davison It is unusual to see a decline of this

extent without some form of economic shock. Is this simply an unwinding of a market that has become overheated and, as such, a good example of macroprudential management? Or is there a wider cause that the market is still trying to get to grips with?

TCHABAN We don’t currently have any

dedicated ESG securitisation mandates. But ESG is a core part of our credit analysis, because we believe poor ESG practices may ultimately have a negative impact on return. WATSON Our book doesn’t have any explicit ESG mandates but National Australia Bank (NAB) is a market leader in the space so it certainly has an influence on our behaviour. Internally there is a clear process of innovation around ESG initiatives and it is a big focus at the bank. Personally, I am a big supporter of ESG and I would love to have more securities available in Australia. We don’t have very much product, what there is doesn’t stay around for very long and we get asked to show stakeholders everything we have that is green or ESG related. I think the developments around ESG have been great and welcome, and the investors we see do too.

Davison If you are offered a green-certified residential mortgage-backed securities

(RMBS) deal, of the kind that NAB has previously issued in the Australian market, is the labelling helpful? Does this negate the need to carry out ESG analysis in house? TCHABAN The label and certification can

play a part, but if our mandate is not ESG constrained or restricted to buying green bonds we have to assess if the label comes at a cost from a return perspective. Again, our take on ESG is broader than a label linked to the level of energy efficiency of the properties being financed. We look, for instance, at product features such as the interest rate being charged, suitability and penalties being applied. The way the borrower is treated during the life of the loan is also relevant.

Davison NAB has arranged a number of securitisation transactions with green labelling. Does taking the steps to be able to offer a certified green tranche resonate with the buy side, particularly with international

◆TCHABAN

It is a bit of both. If house prices stabilise and affordability is restored it could be quite an achievement from a macroprudential perspective. But we can’t be certain yet that things won’t get out of control – though, to be clear, this is not our base-case scenario. If it were, we would not be investing. The way we try to address the issue of housing-market risk is by looking carefully at break-even cumulative default levels for the tranches in which we invest and by running a broad range of scenarios. This is one of the reasons we are moving higher in the capital structure – to try to mitigate any potential feedback loop.

investors? Does it bring in new buyers? SAMSON We have certainly seen

incremental bid in transactions where there has been a certified green tranche. I think there will be more product as the criteria around it continue to evolve – which I think it will soon for mortgages. Asia, Europe and domestic Australian investors appear to be expressing the most interest. But it is really a growing space and we see more and more investors dedicating mandates to it. To Rory Watson’s point, we cannot create enough product to satisfy the demand so the sooner we get more developed criteria the better. I very much agree with Cedric Tchaban that ESG is far more than a green label, too. It is being ethical and responsible in all aspects of the transaction – from how the borrower is viewed and treated and whether the product is right for them to the technical piece around things like energy efficiency. I think developments will extend beyond the label and this is an important evolution as well.

◆ PALEY

The way Cedric Tchaban describes the state of play is more or less the way I see it. We are witnessing a softening in the housing market in a broadly supportive macroeconomic environment. Hence we are probably going to see only a moderate feedback loop, as long as unemployment or GDP growth do not deteriorate significantly. I expect some degree of negative feedback at some point in time because financing conditions are stricter nowadays. We already see the impact of this in the slowdown of the conditional prepayment rate (CPR). I predict this will further materialise through increasing delinquencies trickling down in the next few quarters.

“IF WE TRY TO SELL A PRIMARY ISSUE IN THE SECONDARY MARKET A FEW DAYS AFTER PRICING WE WILL BE BID WIDER THAN WHERE WE ACQUIRED THE PAPER. THIS IS THE OPPOSITE DYNAMIC THAN WHAT TENDS TO OCCUR IN OTHER SECTORS.” JEAN-SEBASTIEN PALEY INTERNATIONAL FINANCE CORPORATION

COPUBLISHED ROUNDTABLE

“THE AUSTRALIAN UNSECURED CREDIT MARKET HAS TIGHTENED DRAMATICALLY OVER THE COURSE OF 2019. THE AUSTRALIAN RMBS MARKET HAS ALSO TIGHTENED BUT NOT TO THE SAME DEGREE. FROM A RELATIVE-VALUE PERSPECTIVE, EVEN DOMESTICALLY, AUSTRALIAN SECURITISED PRODUCT IS THUS VERY ATTRACTIVE.” RORY WATSON NATIONAL AUSTRALIA BANK

If this occurs in a broadly stable macro environment, which is also our base case, I expect the feedback loop to be contained to the weakest borrowers and manageable in the top part of the capital structure – which is also where we focus. We tend to be more cautious on pools with higher loan-to-value ratios (LVRs) or higher interest-only loan concentrations, because these cohorts will be the most affected in a downward housing scenario with tighter credit conditions. It is important to ensure these potential concentrations are compensated by a greater level of credit enhancement and defensive structural features. ◆ PAEZ I view what we have seen so far as a healthy correction. It doesn’t look anything like the correction we saw for example in the US or in Ireland during the crisis: it is not an abrupt, bubble-popping type of situation. Rather, house prices in Australia have got a little bit ahead of their skis when stacked against household income. The regulator anticipated this and tried to introduce measures to normalise prices. The jury is still out on what lies ahead. But I believe that, so far, the effort has been successful. When I look at where house prices are now relative to where they were in recent years, depending on the specific geography in Australia they have retreated generally by a couple of years. I would argue that areas that haven’t seen as much improvement in affordability could see further falls, but the pace at which this is occurring seems to be orderly. At a high level, this is not causing us an extraordinary level of concern at this point. However, we continue to remain attentive to any external shocks that could exacerbate the situation.

Davison Does an environment that is somewhat

weaker necessitate a more granular approach

to assessing the type of loan originator you are willing to look at? Does a declining property market introduce more differentiation between collateral pools? ◆ PAEZ

To a degree, yes. It is important to take a closer look at to whom, and where geographically, originators are lending. Even within specific geographies – for example within Sydney – you’re looking at house prices that have come down at different rates depending on the price point. From this perspective, some lenders will be less affected by the impact of the house-price correction than others and some may be more affected going forward. One can start to make a level of distinction. Frankly, the macroeconomic comments that I have made around the house-price correction in some of Australia’s major cities are not views that we have been very actively trading on – but they are something we understand as a potential lever. They could allow us to introduce some differentiation if the situation starts to deteriorate at a faster pace.

Davison What do you view as the safe haven in

Australian securitisation? ◆ PAEZ

From a credit standpoint, I would argue that in general Australian RMBS will continue to be fine at the top of the capital structure where we invest. At least it will, I think, in a normal cycle where an orderly house-price decline continues and eventually morphs back to more affordable house prices in Australia. We are not talking about a cataclysmic price-bubble bursting. The combination of the level of LVR in the loans, the level of credit enhancement in RMBS and the overall health of the economy means I don’t think the elements of a problem in Australian RMBS are in evidence.

“I VIEW WHAT WE HAVE SEEN SO FAR AS A HEALTHY CORRECTION. IT DOESN’T LOOK ANYTHING LIKE THE CORRECTION WE SAW, FOR EXAMPLE, IN THE US OR IN IRELAND DURING THE CRISIS: IT IS NOT AN ABRUPT, BUBBLE-POPPING TYPE OF SITUATION.” FRANCISCO PAEZ METLIFE

10 · Australian Securitisation Journal | Issue 16_2019

From the perspective of this being part of a normal cycle, I would argue that Australian RMBS is still a pretty solid place to be invested. There may be headline risk but there are no severe problems from a fundamental credit standpoint at the moment. However, investors that are legitimately concerned about house prices but still want to be involved in Australian RMBS will want to pick the spots in which to get involved. For instance, if they are focusing on issuers that have been lending towards the higher end of the pricing spectrum – particularly in Sydney and Melbourne – those prices have performed the worst out of the bunch and continue to have room for correction. The alternative is to focus on the issuers that have been concentrated further down the pricing spectrum in those cities, or that have underweighted them versus other capital cities. For those with a regional view, the regional banks, credit unions or certain specialist lenders are one way for investors to get access to this type of exposure. No lender will be completely shielded from home-price decline, but there are ways investors can start to underweight areas to be most effective. ◆ SAMSON We have also noticed investor preference for being higher in the capital structure this year compared with the last couple of years. There is a very strong bid for triple-A rated tranches of Australian RMBS and most of this is investors moving up the capital structure. We believe this is largely due to house-price concerns. We have seen a slight weakening of demand for the more junior tranches, which have been heavily subscribed over the last couple of years. This means the increased bid for triple-A is quite welcome. ◆ PALEY Australia’s legal system has full recourse to the borrower. The impact of the market decline, which is orchestrated by the regulator, should be contained by this robust legal framework. This is assuming we don’t have a growing feedback loop between tighter credit conditions and GDP or unemployment. If employment figures begin to deteriorate materially, these safeguards should weaken. But, I would rather be exposed to a slowing market in Australia than a slowing market in the US right now.

STRUCTURAL SECURITY Davison The biggest challenges in securitisation

markets tend to emerge when a declining collateral market happens at the same time that less resilient securitisation product is being issued. Is the product being offered by Australian issuers as consistently strong as it ever has been? Are pools changing at all? ◆ SAMSON

As a general point, I don’t have any concerns on this front because high LVR lending has ceased since the crisis due to action the regulators have taken. The one change we have seen in pools of late is a reduction in seasoning from the nonbank sector. This is predominantly a function of the fact that they have been increasing originations and the securitisation market has been very supportive for them. In other words, they have been able to fill up their warehouses and term out into debt markets at a good pace. The reduction in seasoning from the nonbanks is quite the opposite from what we’re seeing in the ADI sector. ADIs have not been as active in securitisation and their transactions are very well seasoned when they do come to market. This is the only fundamental change, in my view. Everything else has remained credit positive: tighter lending criteria, a focus on responsible lending, increased attention on affordability and improved overall credit quality. We haven’t seen a reduction in the level of credit support offered – quite the opposite, in fact. A nonconforming RMBS transaction typically offers 25-30 per cent credit support to the most senior tranches, which is almost double the level required by the rating agencies. Australia has healthy structures backed by soundly underwritten pools of mortgages that have conservative features. Investor-only and investment-loan origination reduced when the regulator took action. Having the benefit of access to orderbooks and investor questions, the biggest concern, is not credit risk and concerns over losses but investors trying to understand potential impacts of prepayment rates as a result of the correction. We have seen prepayment rates start to slow. Elsewhere, focus points in the market at the moment include tightening availability of credit.

“IF HOUSE PRICES STABILISE AND AFFORDABILITY IS RESTORED IT COULD BE QUITE AN ACHIEVEMENT FROM A MACROPRUDENTIAL PERSPECTIVE. BUT WE CAN’T BE CERTAIN YET THAT THINGS WON’T GET OUT OF CONTROL – THOUGH, TO BE CLEAR, THIS IS NOT OUR BASE-CASE SCENARIO.” CEDRIC TCHABAN HSBC GLOBAL ASSET MANAGEMENT

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Global developments and the future of BBSW GLOBAL INVESTORS ARE CONFRONTING THE CONSEQUENCES OF THE IMPENDING DEMISE OF INTERBANK OFFERED RATES (IBORs) (SEE P18). THE SITUATION IN AUSTRALIA IS SOMEWHAT DIFFERENT, BUT CHANGE IS LIKELY STILL AFOOT IN THE LOCAL SECURITISATION SPACE – AND INVESTORS ARE WATCHING CLOSELY.

Davison Regulators in Australia are clear that they think the securitisation industry should transition away from one-month bank bill swap rate (BBSW) as the standard pricing base rate for securitisation. Is the industry waiting for developments to occur or does it need to be more proactive in this respect? WATSON This is a good question and it

is something we have been thinking about. The chatter around one-month BBSW and the appropriateness of how it is calculated is continuing to intensify. However, it is difficult at this point to take a very strong view – suffice to say we are watching closely because it is an important topic. SAMSON There is no doubt that the securitisation industry needs to

transition away from one-month BBSW, and we are hearing this message loud and clear from the Reserve Bank of Australia in particular. While industry bodies are working on this, the market as a whole is yet to reach a consensus on the correct place to move to. There is some distraction around what is happening with global IBOR transition. What is certain is that our market will move away from onemonth BBSW and that it will do so fairly soon. Securitisation is the only Australian product that prices off one-month BBSW. This is part of the reason we need to move – and we will.

Davison Is the natural benchmark to move to threemonth BBSW or would the

securitisation industry be better served by going straight to a risk-free rate such as the Australian overnight index average-linked (AONIA) benchmark? SAMSON I agree it would be easier to

move to three-month BBSW, and many other debt products are issued off this benchmark already. Equally, though, there appears to be a growing push to a benchmark like AONIA. We haven’t carried out significant analysis yet or worked through all the potential consequences to reach a definitive conclusion. Unfortunately, securitisation’s more complex features mean considerably more work needs to be done before we can make a determination. I am certainly not just assuming we will move straight to

“This has all turned out to be something of a Pandora’s Box when it comes to securitisation. What seemed to be a simple and bold idea to get rid of a benchmark rate has ended up being a bit of a nightmare with unintended consequences.” CEDRIC TCHABAN HSBC GLOBAL ASSET MANAGEMENT

◆ TCHABAN

The fact that comparatively high CPRs are generally in evidence is something we like about Australia. If you invest high in the capital structure, the structure de-levers quite quickly. This means exposures that are 2-3 years seasoned have accumulated a lot of additional credit enhancement on a relative basis, so the risk profile is not the same as your most recent investment. This may no longer be the case in the future if CPRs were to fall dramatically, which is why we monitor this carefully. ◆ PALEY CPRs plunging quite dramatically and redraws going up in certain programmes highlight the dynamics around credit availability. I expect this to trickle down into the delinquency pipeline at some point, when some of the more stretched borrowers struggle to make payments or to refinance their loans. 12 · Australian Securitisation Journal | Issue 16_2019

LIQUIDITY ISSUES Davison Locally, the issue we hear most often

from real-money investors around securitisation is that it is not as liquid as vanilla bonds for the same risk profile. What are the latest developments in liquidity in Australian securitisation? ◆ WATSON

In isolation, I would argue that the liquidity picture has improved over the past couple of years. I am not entirely sure whether this is because we have seen more international banks enter the Australian market or because the market is beginning to show more maturity. It is probably a bit of both. Over the last couple of years, we have had large BWICs [bids wanted in competition] being run and for the most part they

three-month BBSW. I think there are other options on the table.

Davison How is the asset class globally coming to terms with IBOR transition, and what are the challenges involved in switching to product priced off alternative benchmarks?

PAEZ There have been a handful of deals

issued in the US that are benchmarked to the secured overnight funding rate (SOFR), so there is some progress in getting the market testing out SOFRbased assets. There has also been some progress in developing LIBOR replacement language that can be introduced into transactions ahead of the LIBOR cessation date. We have seen industry work on this front across a variety of products, including securitisation. Sarah Samson mentioned that securitisation is relatively complex and this is something we are confronting right now. We came up with quite good LIBOR replacement language on securitisation as an industry, but this is just one piece of the documentation we need to make sure is in place. What we need to do now is look at all the contracts used in securitisation to be able to implement LIBOR change when the cessation occurs. The more complex part is that we are moving towards SOFR but today

there is just a spot SOFR number – in other words there is not a SOFR term curve. Coupon payments are to be calculated by compounding the daily SOFR rate. The current consensus is that this calculation will be done in arrears. In the financial markets this is something that, while not as operationally easy, is understood and can be managed. However, it will introduce an additional layer of complexity when we try to explain to consumers that their loan rate is going to be unknown until the date their payment is due. As a result, many of the discussions that are happening right now are specifically related to consumer products. TCHABAN This has all turned out to be something of a Pandora’s Box when it comes to securitisation. What seemed to be a simple and bold idea to get rid of a benchmark rate has ended up being a bit of a nightmare with unintended consequences. Some discussions we are having in the UK are around the potential for new basis risks. This is because there may be constraints around what can be done on the consumer side and thus we may end up having, for instance, loans that are based off LIBOR transitioning to the Bank of England’s base rate while liabilities switch to the sterling overnight index average. There are

have been very successful. Where they have been less so it has generally been because of pricing rather than lack of a bid. Having said this, I can understand the frustration that Jean-Sebastian Paley has expressed about liquidity. The market still suffers from volatility and illiquidity from time to time, as most markets do. My experience with offshore markets is that

many unanswered questions that might remain unanswered for some time. PALEY I agree that it is a very complex exercise. I am not convinced by the idea that, as an industry, we will manage to switch from LIBOR to replacement LIBOR from one day to the next. We have to deal with the complexity of addressing the asset and liability sides – on and off balance sheet – all the derivatives and the resulting possible asset-liability management risk. The quantity of paper to switch, the necessary creditor approvals to obtain in some instances and the possible large variability among these terms are creating such complexity that I am not convinced the switch will be possible without a period of transition over a number of years. Coming back to the potential one-tothree month BBSW switch in Australia, I think what we are talking about in IBOR reform internationally is slightly different. Australia isn’t moving to an entirely new benchmark, so switching from one to three months would be relatively straightforward. If we are talking about a new rate or product, clearly it would become more complex to transition. The switch raises the problem of in-house product validation. In our case, this will take some time and will be something to be addressed over the next few quarters.

illiquidity is increasing there, too. All in all, I think we may have been spoilt in the last couple of years when it comes to liquidity expectations. We don’t generally participate in subordinated tranches, but I understand that this space can be illiquid. These notes are popular in primary and, combined with often heavy

“THE MARKET STILL SUFFERS FROM VOLATILITY AND ILLIQUIDITY FROM TIME TO TIME, AS MOST MARKETS DO. MY EXPERIENCE WITH OFFSHORE MARKETS IS THAT ILLIQUIDITY IS INCREASING AND I THINK WE MAY HAVE BEEN SPOILT IN THE LAST COUPLE OF YEARS.” RORY WATSON NATIONAL AUSTRALIA BANK

COPUBLISHED ROUNDTABLE

“SECURITISATION NEEDS TO CONTINUE TO BE A GOOD SOURCE OF FUNDING FOR LOCAL ISSUERS BECAUSE MORE VOLUME COMING INTO THE MARKET SHOULD ALSO SUPPORT BETTER LIQUIDITY.” FRANCISCO PAEZ METLIFE

oversubscription, the bonds often just get locked away. They are very difficult to buy or source if an investor can’t get set in primary, and conversely to distribute if there is not a wide set of holders of a particular note. As I say, I believe liquidity has improved but equally I can understand the frustration that some offshore investors have.

Samson Have you seen liquidity improve this

year relative to last? ◆ WATSON

Last year we were being asked mostly for bids in the first half of the year and offers in the second. It was harder to turn over nonbank-issued bonds in particular. This year the price piece has played a big part and we have been involved in considerable volume of secondary flow, whether or not we wanted to. By this I mean we would have liked to have seen more primary supply. There aren’t many parties looking to sell product at the moment.

Davison What sort of liquidity are we talking

about? There is the kind of liquidity market participants would like to have – meaning the ability to buy and sell freely – and the type they need, which is to realise cash when necessary. How does the liquidity situation in Australia compare on a global basis? ◆ PALEY

I think your definition of the liquidity we would like and that which we get is a very good way to phrase the dynamic. In my experience there is nearly always a buyer – the issue is pricing level. For example, if we try to sell a primary issue in the secondary market a few days after pricing we will be bid wider than where we acquired the paper. This is the opposite dynamic than what tends to occur in other sectors, where secondary is usually tighter than primary.

One of the frustrations I have with the market is some of the dealers – and I will be clear that NAB is not one of them – are in my opinion putting little effort into market-making on transactions. Australian issuers should push their leads and co-leads to make secondary markets and improve liquidity. I don’t believe it is truly diligent when arranging a transaction not to offer this kind of service afterwards. ◆ TCHABAN It is one thing to pocket arrangement and placement fees and to bring a lot of deals to market, but this should come with some commitment to supporting secondary liquidity. To be fair, liquidity in Australian RMBS has improved quite dramatically. But it often feels like liquidity is very strong during London hours and less so in Australian hours. ◆ PALEY I feel that there is a duty when you take the arrangement fees to provide post-pricing service in the form of making markets and providing some liquidity – and we are not seeing this on a satisfactory scale. ◆ PAEZ I also agree that there is still a lot of work to be done. In any other markets this profile of triple-A rated RMBS bonds would be considered very high-quality, flow product. We hold lots of high-quality US securitised product in our portfolio. If I want to sell this product I put it on a bid list and within a couple of hours I can be out of the paper with high efficiency and a low bid-ask spread. I can’t do the same thing with Australian securitisations. If I want to get good execution I need to give two or more days’ notice to achieve a more acceptable outcome. There is a big gap to fill and all the international banks entering Australia will help – but it is also a function of the market. It needs to continue to be a good source of funding for local issuers because more volume coming into the market should also support better liquidity. ■

“A PREFERENCE FOR BEING HIGHER IN THE CAPITAL STRUCTURE THIS YEAR COMPARED WITH THE LAST COUPLE OF YEARS IS A THEME WE HAVE ALSO NOTICED. THERE IS A VERY STRONG BID FOR TRIPLE-A RATED TRANCHES OF AUSTRALIAN RMBS AND MOST OF THIS IS INVESTORS MOVING UP THE CAPITAL STRUCTURE.” SARAH SAMSON NATIONAL AUSTRALIA BANK

14 · Australian Securitisation Journal | Issue 16_2019

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Q+A

ANDREW MARSDEN GENERAL MANAGER, TREASURY AND SECURITISATION DEBBIE LONG DIRECTOR, TREASURY AND SECURITISATION

ORIGINATION AND FUNDING GROWTH STILL IN RESIMAC’S SIGHTS Resimac has been able to take advantage of positive market conditions for nonbank lenders in Australia to grow its book – and funding platform – in recent years. Despite a more challenging housing market in 2019, the firm is not stepping back from its expansion ambitions, which includes building its New Zealand book, further diversifying its investor base and continuing to develop its global funding footprint.

hat does Resimac view as the priorities and key strengths of its own securitisation issuance

programme? ◆ MARSDEN Where we consider ourselves different from our competitors is our ability to understand and meet the expectations of our investors over the long term. We come at our business from the perspective of the investor being the ultimate client that we wish to service – in conjunction, of course, with the retail borrowers at the front end. ◆ LONG In every trade we complete, we spend time with investors from the outset to understand where their interests and sensitivities lie. We then try to accommodate these through aspects of duration and credit nuances in our structures. We also pride ourselves on the provision of deal information, pre- and post-issuance. Resimac has always made detailed and granular investor reporting available and has fostered a transparent approach to providing information and data to investors – based on the understanding that they are the ultimate funders of our business. There has been a lot of discussion in the industry over the last few years about ownership structures in the nonbank sector and the interplay between corporate disclosure and engagement with debt investors.

16 · Australian Securitisation Journal | Issue 16_2019

How does being one of Australia’s few listed nonbanks tie in with funding strategy? ◆ MARSDEN Transparency requirements for most nonbanks in the Australian market are driven mainly through the establishment of their funding models, in that they originate into a secured funding facility. This typically results in publicly rated structures and thus a need for transparency in an entity’s core asset and liability structures. With regard to Resimac’s public listing, little change was required to internal governance – building upon the rigorous regime the company adhered to prior to listing. What it has done is allow an extra level of comfort around the company’s ownership structure, particularly for offshore investors. There are also some implied transparency benefits and the ability to access equity capital markets if we choose to, for strategic acquisitions or other transactions that warrant this type of funding. ◆ LONG We have always been a public company, but the listing now increases public access to information. The current year marks the 34th anniversary of Resimac operating in the nonbank mortgage space. Meanwhile, as one of the only publicly listed nonbanks, we have a longstanding majority shareholder which is focused on the longevity of the business across its originations and funding channels. With this in mind, we

have established a funding programme that promotes sustainability and Resimac’s long-term objectives. Conditions in the Australian housing market are clearly not as positive as they were a year or two ago although the pace of price decline may have slowed. How does the change in market tone affect Resimac’s growth ambitions and the means by which it plans to achieve them? ◆ MARSDEN Resimac’s portfolio growth is a function of its risk settings, taking into account the full macroeconomic landscape – including the housing market. We have the flexibility to make changes to our origination and credit underwriting policies in response to any adverse risks we observe in the market, whether they be on a regional basis or across the board. ◆ LONG We have pricing and policy levers in place to regulate our origination volume, while also having the flexibility to amend our funding structures to take into account any perceived credit risks in the underlying portfolio. Our core target market is prime and nonconforming borrowers in the Australian and New Zealand markets. Our prime suite is very much aligned to the major-bank offering – as demonstrated by book performance. We take a measured, conservative approach to our nonconforming product suite. Our nonconforming offering is a suite of products that

allows us to tailor our mortgage offering to borrowers that may not fit into a traditional bank-style product. How does the business profile and the growth achieved so far feed into Resimac’s funding requirements and strategy? ◆ MARSDEN Our funding task has grown significantly over time and our investor diversification has continued to broaden to provide additional capacity. As an issuer, we believe we need to maintain consistency in our approach to the capital-markets offering and, in turn, we have to be capable of catering to all types of credit and spread investors. ◆ LONG Resimac’s funding approach enables it efficiently to fund its mortgage portfolio. The overall funding strategy has been established to support the origination activities of the business. We have a focused objective to diversify our funding opportunities, be that through a global investor base or through securitisation structures, while also maintaining a consistent issuance profile in the market. Our approach to diversification allows us to cater to a range of investors of differing risk appetites, as we offer a full capital stack for every transaction as well as varying currencies, formats and duration. How has Resimac observed investor appetite developing domestically and offshore? ◆ MARSDEN Domestic investor appetite remains stable and we have seen consistent participation throughout the capital stack. We have strong investor support for our senior tranches and likewise a diverse mix of investors

that participate in the mezzanine and subordinated tranches. All our domestic investors have been working with Resimac for quite some time and form a critical component of our overall funding task. This said, we have seen offshore distribution is forming an increasingly larger part of our issuance profile. We have been successful in the US 144A market and we are excited about building our issuance programme in the Asia-Pacific and Japanese markets, as well as exploring prospects that may emerge from jurisdictions in continental Europe and the UK. ◆ LONG While we recognise and acknowledge the significant support from our domestic investor base, it is true that offshore investors have played an increasingly important role in our funding programme. We have been investing more time with these buyers, not only as part of the deal process but also via nondeal roadshows to educate investors about our business and the nonbank sector in Australia more broadly. It is clear that technology is an increasingly important element of the lending business. How is Resimac addressing the challenges and opportunities? ◆ MARSDEN We have been on the front foot in technology development in response to the continuously changing lending landscape. We have continued to make significant capital investment in our platform to ensure it meets the requirements of the asset and liability sides of the organisation. The primary objective we look at with our systems is for them to be

flexible and scaleable to support growth aligned to our business strategy while offering efficiency and productivity outcomes and comprehensive management-information-system reporting. ◆ LONG Owning our own platform has enabled us to respond to opportunities, whether in the market or product development, with an element of control and governance one would not have if using third-party providers. It has also allowed us to implement additional workflow tools to streamline the loanapplication process, which in turn has enabled us to increase volume over the last 12 months. With the pulling back of the banks in our sector, we have been able to pick up additional market share without changes to our policies or approval processes. The quality of our internal policies and processes continues to be evidenced through our arrears performance. Resimac has also issued residential mortgage-backed securities (RMBS) in New Zealand. What is its strategy in this jurisdiction? ◆ LONG We are very positive about the development of the New Zealand primary-issuance market and have seen an evolution in our investor base over three RMBS transactions. The objective with our New Zealand dollar programme is to be a regular issuer in the market. Our underlying business in New Zealand encompasses prime and nonconforming loan originations. We anticipate strong growth opportunities as a nonbank in this jurisdiction and we will be looking to bring another New Zealand RMBS deal to market within the next 12 months. ■

“Resimac’s portfolio growth is a function of its risk settings, taking into account the full macroeconomic landscape – including the housing market. We have the flexibility to make changes to our origination and credit underwriting policies in response to any adverse risks.” ANDREW MARSDEN

FEATURE

AUSTRALIAN INDUSTRY TAKES THE INITIATIVE Benchmark reform is a huge issue in global capital markets ahead of the expected demise of interbank offered rates (IBORs) in the coming years. The situation in Australia is different, but the securitisation market is still at the forefront of change. BY LAURENCE DAVISON

he IBOR equation in most global markets is relatively straightforward, even if its solution is far from simple. At some point in the next few years – generally the end of 2021 – regulators will no longer compel banks to submit IBOR rates on which the benchmark is based. In the absence of compulsion, most market users expect IBORs will cease to exist. The remaining months of IBORs’ existence are therefore being used to identify and establish replacements for legacy and existing contracts. This is an enormous task. An oft-quoted figure is the International Swaps and Derivatives Association (ISDA)’s estimate that US$370 trillion of contracts globally reference IBORs in some form. The influence of IBORs stretches from bond and derivative markets through to investment funds, corporate loans and residential mortgages. The challenges are theoretical and operational. There are issues around the suitability of alternative reference rates, specifically that none accurately replace the way IBORs incorporate credit and term premia. Most replacement rates are in some way based on central-bank cash rates, which are risk-free and overnight. How to transition from IBOR to alternative reference rate (ARR) with minimal basis risk remains an open question. Less discussed but almost as challenging are the operational issues. Market participants may have to adapt to new payment practices, adopt new calculation methodologies or factor in retrospective, rather than forward-looking, payments. In some ways, Australia is in a fortunate position. Unlike most global markets, a recent overhaul of bank bill swap rate (BBSW) calculation methodology has helped convince

18 · Australian Securitisation Journal | Issue 16_2019

regulators and market participants that the local base rate does not suffer from the same existential failings as other IBORs. Specifically, BBSW is still based on physical transaction activity in the bank-bill market rather than on bank submissions. However, the Australian securitisation industry still faces two major IBOR-related challenges. One is that it will need to be sufficiently aligned with global developments if it wants to maintain and grow in- and outbound investment links. The other is that while BBSW as a whole appears to be safe and sound for at least the medium term, the future of the component of BBSW that is habitually used as the reference benchmark for securitisation – the one-month rate – is under a cloud.

THE END OF IBORs It should now be clear to all market participants that the days of most IBORs are numbered. That this has not always been the case largely rests on the fact that regulators are not actually planning to ban IBORs, merely that they are not going to compel the inputs required for their formulation. Regulators acknowledge that there has been an element of brinksmanship from some market users: a refusal to engage with benchmark reform on the basis of a belief that IBORs will end up enduring in some form. There is clearly now a globally coordinated regulatory effort to force home the message that the wait-and-see approach is not good enough. IBOR calculation is on life support as it is. Speaking at a special event hosted by the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) in Sydney in May, Christopher Giancarlo, chairman of the US Commodity Futures Trading Commission (CFTC), outlined just how thin underlying market volume has become. He revealed that there are fewer than a dozen trades each day in certain US LIBOR rates and in some cases just two or three. Average trading volume is less than US$1 billion. “LIBOR is like a house left teetering on one building block in its foundation. The potential harm of this weak foundation is something we should all be concerned about,” Giancarlo said. Nor should market participants assume that a straightforward substitute – a kind of proxy LIBOR – will be found and delivered deus ex machina. Giancarlo said the CFTC has been asked whether it is possible to “fix” LIBOR, but the regulator’s conclusion is stark. “It comes down to a trade-off between financial stability and market function,” he told delegates at the Sydney event. “If we continue to tolerate a less-than-robust rate to avoid the short-term pain associated with transition, we will eventually need to deal with the risk to the financial system of hundreds of trillions of dollars referencing a rate that only trades in a handful of transactions per day.” The situation is slightly more nuanced in Australia but the challenges are no less. Speaking at the same forum, RBA deputy governor, Guy Debelle, noted that the transactions

underpinning BBSW are “Most issuance reflects BBSW whether it is fit for still “meaningful in a way that generates proper purpose or not. While BBSW is likely to continue for price discovery”. He the foreseeable future, this does not mean it isn’t also reiterated the RBA’s sensible to ask whether it is the right reference rate.” confidence in BBSW as a robust benchmark “for the GUY DEBELLE RESERVE BANK OF AUSTRALIA foreseeable future”. At the same time, though, Debelle cautioned Australian market users not to The ASX has revised its methodology for one-month BBSW, ignore international developments and to take advantage of narrowing the maturity window into which transactions must the opportunity to reassess local norms. fall. This has improved volatility, the exchange says – but it has He said: “Most issuance reflects BBSW, whether it is fit not removed the question around suitability of one-month for purpose or not. While BBSW is likely to continue for the BBSW as a reference rate. foreseeable future, this does not mean it isn’t sensible to ask The RBA has suggested on several occasions that markets whether it is the right reference rate.” should re-examine the use of one-month BBSW as a reference rate. Most recently, at the same ASF briefing, Ellis Connolly, ONE-MONTH WOES deputy head, domestic markets department, said: “We are The most obvious immediate connection between Australian encouraging users of one-month BBSW seriously to consider securitisation and international IBOR transition is the flow of using alternative benchmarks that have better properties. issuance from local borrowers to offshore investors. The demise Alternatives include three-month BBSW or using the overnight of IBORs could make cross-currency swaps problematic, while cash rate in some compounded form.” market sources say Australian issuers and their arrangers need This is a critical issue for Australian securitisation, almost to have plans in place to avoid losing access to key investors (see all of which is priced off one-month BBSW. In this respect it is box on p20). almost unique in capital markets. Local floating-rate note (FRN) In a purely domestic context, the key issue is the status of issuance, for instance, typically refers to the more robust threeone-month BBSW. The challenge here is that while Australian month bank-bill rate. banks still issue 3-6 month paper for funding purposes – thus So far, the RBA’s approach has been to encourage providing the backbone of a robust reference rate in these engagement with the issue. But market sources are aware that tenors – net stable-funding ratio regulation makes one-month a stick lurks in the background: ultimately, the RBA could borrowing effectively worthless to the banks. rewrite its repo-eligibility rules in a way that excludes product There is trading volume in one-month bank bills, but it is that does not meet its expectations on reference-rate and largely a one-way market in which issuers buy back their own fallback language should a headline rate become unavailable. paper once it becomes too short-dated to have value. This means less homogeneity of tenor in the one-month bucket than the INDUSTRY RESPONDS longer-dated BBSW maturities – and thus a more volatile rate. The Australian industry is keen to act before it is forced to do “We see a lot more variability in the maturity dates of the so. The ASF established a benchmark working group in the transactions with the one-month rate,” Kristye van de Geer, second half of 2018, including stakeholders from across the head of interest rate markets at the Australian Securities market. The goal is to establish ASF guidelines for international Exchange (ASX) – which administers BBSW – told an Australian engagement on IBOR transition and coordinate a local industry Securitisation Forum (ASF) briefing in April. “This is reflected response on the use of one-month BBSW in the securitisation in more variability in the rate, primarily because the paper market. funds are selling back to banks depends on what happens to be “It is important that industry leads market developments, available in their portfolios.” has heard what the RBA is saying about BBSW and is acting

“Australian securitisation can’t move independently of what is happening in global markets. We don’t want to go in our own direction only to find that we have gone off piste from where global markets and, especially, global investors are going.” DAVID ZIEGLER MACQUARIE BANK

FEATURE

Cross-currency conniptions THEORETICALLY, AUSTRALIA’S CAPITAL MARKETS COULD AVOID INTERBANK OFFERED RATE (IBOR) TRANSITION ENTIRELY BY SIMPLY STICKING WITH THE ESTABLISHED, REJUVENATED BANK-BILL SWAP RATE (BBSW). EVEN IN THIS CASE, THOUGH, LOCAL MARKET PARTICIPANTS WILL HAVE TO RESPOND TO GLOBAL CHANGES IF THEY WANT TO BE ACTIVE OFFSHORE. The crux of the issue is the basis risk that would be inherent in issuing or investing in foreign-currencydenominated product priced off the new alternative reference rates (ARRs) but swapped back to Australian dollars on a BBSW basis. ARRs like the US’s secured overnight funding rate (SOFR) typically include no credit premium and how they are extrapolated for tenor is a work in progress. BBSW is a term credit rate. “Some of the biggest risks in IBOR transition – or, more positively, the biggest drivers of change – will come if an issuer or investor can’t get the swap,” Liam O’Connor, portfolio manager, short-term investments at Colonial First State Global Asset Management, told delegates at an Australian Securitisation Forum (ASF) briefing in Sydney in April. He added: “If a bank in the US won’t offer a SOFR-BBSW swap or if it were to price it prohibitively, that would force the issue quite quickly, I imagine.” National Australia Bank’s acting head of funding, Scott Mitchell, agrees that international divergence could be the catalyst for movement in Australia given BBSW is, in and of itself, a robust rate. “It’s not hard in theory to envisage a scenario where

BBSW and ARRs operate in tandem for some time. But over time, and as the rest of world moves towards ARRs, I’m not sure BBSW necessarily maintains its relevance.” Ellis Connolly, deputy head of the Reserve Bank of Australia (RBA)’s domestic markets department, says he suspects the Australian international market will over time migrate to using ARRs on both legs of the cross-currency swap – for instance SOFR or the UK’s sterling overnight index average crossed against the Australian overnight index average. It is not necessarily the reserve bank’s role to drive this change, though. Connolly said at the ASF event: “From our perspective, it should be up to market participants to determine what the transition for the Australian dollar looks like and the most appropriate benchmark to use – whether that be the cash rate or BBSW, depending on circumstances.”

International engagement

The good news is that international regulators appear to be aware of the unique features of the Australian market and suggest they are willing to discuss how best to align them with global developments.

in concert to respond appropriately,” says David Ziegler, chair of the working group and division director, IBOR transition programme at Macquarie Bank in Sydney. Ziegler says the ASF working group is operating on the premise that the RBA wants to see the issue of one-month BBSW addressed in 2019 – a timeline which is broadly in line with global developments on IBOR reform. This does not necessarily mean a transition away from BBSW must be completed this year or at all – just that the issue has been substantively explored with stakeholders and a plan to move forward put in place, including the adoption of robust fallback language. 20 · Australian Securitisation Journal | Issue 16_2019

For instance, Laura SheridanMouton, partner at Herbert Smith Freehills, highlighted at the ASF briefing that the European Commission has recently issued a draft decision recognising the legal and supervisory framework applicable to benchmarks in Australia in accordance with EU benchmark regulation. “This is a positive development because it means BBSW can continue to be used in the EU after 1 January 2022,” she added. Meanwhile, Christopher Giancarlo, chairman of the US Commodity Futures Trading Commission, took the opportunity of an appearance at an event hosted by the Australian Securities and Investments Commission and RBA in Sydney to encourage local market participants to engage with the international process. Giancarlo explained: “Countries like Australia have an active crosscurrency market. We want to make sure market participants here and in similar jurisdictions are tracking the ARRC [New York Federal Reserve Alternative Reference Rate Committee] efforts and are able to participate directly or indirectly by providing feedback to the various consultation efforts that are taking place for OTC derivatives, and loan and cash products.”

With this in mind, the working group plans to develop a shortlist of matters on which to consult with industry, most likely in the third quarter. Even before consultation begins, the working group is laying the foundations for engagement by developing a trio of interim measures. The first is standardising the definition of BBSW used in new securitisation documentation to one that reflects current ASX calculation methodology. Ziegler says a high-level review of 2018 primary RMBS issuance made clear that there were minor inconsistencies between securitisation transactions, such as time of BBSW publication, which could be standardised.

“It is possible to lose control of the situation. The closer we are to the point when LIBOR ceases to exist, the more the dynamics of the market will have changed. You don’t want to have to reopen negotiations more broadly on the commercial aspects of contracts.” CATHIE ARMOUR AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Next is a generic risk disclosure for offering documents that describes benchmark transition as a potential risk for noteholders. This is designed to ensure that investors are informed of the potential situation around BBSW. Finally, the working group is aiming to recommend more robust fallback language in new issues. “This is more challenging as there is a range of opinions about what fallback language should look like that will probably need to be considered in the consultation,” Ziegler says. “We don’t want to overengineer an interim solution at this stage. But the sooner the industry starts adopting more robust fallbacks, the better.”

PICKING AN OPTION On the basis that sticking with one-month BBSW as the standard market benchmark is unsustainable, the industry ultimately has to make two decisions. One is what benchmark to transition to, with the choices being a shift to three-month BBSW, a full-scale transition to an ARR linked to the RBA cash rate, or some type of hybrid solution. The other is when to move – and how to ensure an orderly, whole-of-market transition. At face value, moving to three-month BBSW seems like it ought to be the most straightforward option. But closer examination shows that this is not necessarily true. For one thing, the RBA is at least hinting that it would prefer an Australian overnight indexed average (AONIA) solution – in other words, one that uses the cash rate as its ultimate underlying. “We at the RBA provide a risk-free rate, we publish it every day and it is there to be used,” Debelle said. “A risk-free rate is not fit for use in every single purpose, but we would be very pleased to see more issuance referencing that rate rather than BBSW if it is the right rate to use.” Moving to three-month pricing is also less simple from an operational perspective than might be assumed. Issuers say having three months’ build-up of cash collections in a securitisation trust instead of one creates negative carry and causes a slight increase in security weighted-average life (WAL). This means more cost for issuers. One bank treasury source estimates the negative cost of carry would likely be a few basis points for major banks and more for smaller banks and nonbanks, and while the cost impact of extended WAL could be smaller it would still be significant. The funder says there is little likelihood that investors would be prepared to bear this cost given securitisation is just one of the investment options available to them. In other

words, it would be a small but not insignificant blow to the relative value of securitisation compared with other asset classes that would have to be absorbed by issuers. On the other hand, switching to a 30-day AONIA benchmark is not as easy as simply nominating it as the preferred option. Global markets have not yet settled on a convention for extrapolating an overnight, risk-free rate to become valid to term credit products. The UK is perhaps most progressed with IBOR transition thanks to the well-established nature of its ARR, the sterling overnight index average (SONIA). But even here there is no clear path to establishing a convention on term and credit premia. Issuers have dipped their toes in the waters of SONIAlinked FRN issuance – including two Australian banks, ANZ Banking Group and Commonwealth Bank of Australia. Reports are that investor takeup of these deals has been good but that distribution relies on a buyer base that is willing to accept coupon payments calculated in retrospect. Andrew Bailey, head of the UK Financial Conduct Authority (FCA), said at the ASIC-RBA briefing there are unanswered benchmark questions even in the sterling market. The FCA is aware of an active debate in the cash market about how to replicate the element of bank credit risk from an ARR base and how this can be delivered in a forward-looking format. The market is also not yet settled on whether to add a credit spread to SONIA and, if so, how this should be calculated. “This is an open debate. What I would say is that we need to make very good progress this year on defining and finding solutions to these issues, so there is time to put things into effect,” Bailey said. The issue is in focus internationally. Speaking at ISDA’s AGM in Hong Kong in April, ISDA’s deputy general counsel, Anne Battle, revealed that the association is developing an adjustment for credit based on a historical mean of IBOR versus

“There is going to be a lot of complexity on the investor side as well as on ours. Educating investors on the requirements and on why we are going to pivot one way or the other will require us to listen to them and determine what suits them best.” SCOTT MITCHELL NATIONAL AUSTRALIA BANK

FEATURE

Battling for the buy side TWO EARLY EFFORTS TO ENGAGE AUSTRALIAN DOLLAR INVESTORS WITH ALTERNATIVE BENCHMARK RATES FOR FIXED-INCOME ISSUANCE DEMONSTRATE WHY THE SECURITISATION INDUSTRY IS RIGHT NOT TO TAKE BUY-SIDE TRANSITION FOR GRANTED. In March 2016, Commonwealth Bank of Australia (CommBank) offered a benchmark residential mortgagebacked securities transaction with a dual class-A note structure. One tranche was benchmarked against the one-month bank-bill swap rate (BBSW), the other was benchmarked against three-month bills. In 2019, South Australian Government Financing Authority (SAFA) has been sounding the market on a vanilla floating-rate note (FRN) using the Australian overnight indexed average (AONIA) as its benchmark. Neither transaction was specifically designed with widespread benchmark transition as its primary goal. CommBank was testing the waters for securitisation issuance that was more immediately comparable with vanilla FRNs, which typically price off three-month BBSW. SAFA’s goal is to establish a benchmark for semi-government FRNs that it believes is more appropriate to high-grade issuers than a bank credit rate. What the transactions do show is that the Australian dollar investor base

is not falling over itself to move to new benchmarks. In the end, the three-month BBSW tranche of Medallion Trust Series 2016-1 went unfilled and all A$1.4 billion (US$978.5 million) of top-rated notes were printed with a one-month BBSW coupon. Sources familiar with the CommBank RMBS say this did not reflect an absence of demand for the three-month notes but a somewhat more nuanced response. Interest in the new-style tranche largely came from less frequent securitisation investors, and when the bulk of the book came in for the one-month notes the other accounts changed their preference to reflect the likelihood of superior liquidity in the traditional format. SAFA, meanwhile, still intends to place its AONIA-based deal. But Andrew Kennedy, the issuer’s Adelaide-based director, treasury services, admitted at a roundtable hosted in January this year by CommBank and KangaNews that investor engagement is very much a work in progress.

the risk-free rate. This will reference a vendor, and ISDA is undertaking an RFP to select this provider. ISDA is clearly the likeliest contender to provide guidance that becomes the global norm. Speaking at the ASF event in Sydney, Laura Sheridan-Mouton, partner at Herbert Smith Freehills, said an ISDA consultation in 2018 – to which the ASF contributed – could be key to ensuring that ARRs are comparable to the relevant IBORs with regard to tenor and credit risk. “ISDA found strong support for using the compounded setting-in-arrears rate for the term adjustment to the ARR and the historical mean-median approach for the spread adjustment,” Sheridan-Mouton revealed. There is certainly support for following this lead. Debelle said: “One reasonable avenue is to follow ISDA. It has set the path for the derivatives market, and this is at least a reasonable 22 · Australian Securitisation Journal | Issue 16_2019

“There is no urgency to transition in Australia because BBSW will continue to exist for the time being,” Kennedy said. “In the mindset of the investor community, until there is a desire to start changing the matrix for how the benchmarking for moneymarket funds is managed, there will be no urgency for change in systems or technology.” Australian investors tend to say they will follow liquidity unless they are compensated appropriately to be early adopters of a new product. For instance, at the same roundtable Ben Alexander, Sydneybased principal at Ardea Investment Management, said: “The benefit from abandoning something that works is arguably zero. The cost is quite substantial. We have established that FRNs based on BBSW are the most well recognised, so when an issuer – taking SAFA as an example – says it wants to issue against AONIA it will be creating an instrument that is less liquid and less well recognised. The bottom line is that an investor in an instrument like this will require an illiquidity premium for it.”

starting point for how we would like fallbacks to work in cash products. The solutions that are being come up with in the derivatives market are reasonably transferrable.”

TIMING A RUN The Australian industry, therefore, knows it needs to progress from one-month BBSW, has doubts about the value of the most obvious fallback option – three-month BBSW – but cannot yet be absolutely certain about how ARR-based benchmarks will evolve globally. This makes the road forward challenging. Anne-Marie Neagle, partner at King & Wood Mallesons, told participants at the ASF event: “I think we are building an aeroplane while it is flying. We know things need to change, but we don’t have local, global or product-based consensus on what those changes are going to be. We have heard from the RBA that we need to have fallbacks and we have an idea of what

those fallbacks are going to be. But we don’t have consensus on the exact methodology, for example, in translating the credit spread and the term structure to ARRs.” In circumstances like these, and especially given Australia has the apparent luxury of a functional IBOR – even onemonth BBSW remains usable for the time being – it might be tempting for the local market to sit back and wait to see how international developments play out. To some extent this is not just the expedient but the optimal approach. Ziegler says: “We are working to see the issue of one-month BBSW addressed in 2019, though it is also clear that Australian securitisation should not move independently of what is happening in other markets including derivatives and offshore securitisation. We don’t want to go in our own direction only to find that we have gone off piste from where global markets and, especially, global investors are going.” The ASF is also coordinating its efforts with other industry bodies looking at benchmark reform, such as the Australian Financial Markets Association and the Asia-Pacific Loan Market Association. But there is little if any time to waste. Ziegler adds that the Australian industry does not want to be left behind global developments but instead wishes to move in lockstep with international progress. Debelle, meanwhile, says there is an obvious reason to establish principles before transition is imminent. He explained: “The time to [develop transition arrangements] is now, not the day when everyone can go through, contract by contract, to work out whether they are better or worse off and only agree on the fallback when they are better off. If you agree in principle now, ahead of time, as to what a reasonable fallback is, there is a reasonable chance you can come up with a sensible one.” A similar message comes from ASIC commissioner, Cathie Armour, who said at the Sydney regulators’ event: “It is possible to lose control of the situation. The closer we are to the point when LIBOR ceases to exist, the more the dynamics of the market will have changed. You don’t want to have to reopen negotiations more broadly on the commercial aspects of contracts – it is much better to deal with potential issues early on.”

INVESTOR ENGAGEMENT

“LIBOR is like a house left teetering on one building block in its foundation. The potential harm of this weak foundation is something we should all be concerned about.” CHRISTOPHER GIANCARLO COMMODITY FUTURES TRADING COMMISSION

Market participants are clearly aware of the need to develop a product that is not just structurally coherent but also investible. The ASF benchmark working group includes a number of key investors, and Ziegler says these participants are engaged and provide an important perspective on the ASF’s work. “Issuers are aware that they are the ones that will have to do the heavy lifting. But deals can’t get done without investors engaging,” he adds. It is certainly not a given that investors will swing into line with whatever benchmark option the securitisation industry lands on. Indeed, there is some, albeit limited, precedent suggesting that the Australian investor base may prove hard to shift when it comes to benchmark transition (see box on facing page). Securitisation faces a unique challenge in Australia, because it is the only debt asset class with the proximate issue of one-month BBSW pricing. The worst-case scenario for the industry is one in which securitisation shifts its base rate in a way that makes it less appealing to investors while the rest of the market – in particular vanilla FRNs – happily continues to price off three-month BBSW. This is probably the strongest argument in favour of adopting three-month BBSW. Scott Mitchell, acting head of funding at National Australia Bank, told participants at the ASF briefing: “If there is a pivot towards three-month BBSW, being able to compare a securitisation transaction against an unsecured benchmark will become easier for investors to do. If securitisation becomes the first asset class to move towards an AONIA-linked benchmark, it probably creates a problem the other way – in that the relativities between asset classes become a little bit more opaque.” Again, early engagement is key. Mitchell continued: “There is going to be a lot of complexity on the investor side as well as on ours. Educating investors on the requirements and why we are going to pivot one way or the other will require us to listen to them and determine what suits them best.” ■

The other major consideration for the Australian securitisation market is how it can increase investor engagement with its asset “I think we are building an aeroplane while it is class at the same time flying. We know things need to change, but we don’t as it moves away from a have yet local, global or product-based consensus on benchmark with which what those changes are going to be.” the buy side is familiar ANNE-MARIE NEAGLE KING & WOOD MALLESONS and which it believes offers the most liquidity.

COPUBLISHED FEATURE

TRUSTED PARTNERS In an environment of evolving regulation and increasing focus on due diligence around data and reporting, and where the need for accuracy is paramount, outsourcing the trust-manager role should not be viewed as handing over the keys to the business. There are many implicit advantages to working with specialists.

ecuritisation structures are inherently complicated so – in combination with the different trusts and warehouses, associated documentation, administrative tasks and modelling for investors that securitisation requires – it makes sense to consider in some detail how best to administer the funding side of the business. Issuers can choose to keep the function in house, but outsourcing enables them to remove the heavy lifting, leverage expertise and scale, and focus on their core and businessdevelopment strategies. The strategic advantages and the fact that specialised providers have access to industrial-scale technology mean that more issuers – seasoned or new to market – are choosing the outsourced option.

BESPOKE SOLUTIONS The in-house solution tends to be spreadsheet-based. BNY Mellon (BNY)’s Sydney-based managing director and market head, Australia, Robert Wagstaff, says there is a growing sense from originators that technology-based solutions are more appealing. The challenge is getting comfortable with the notion that they need to give up some control over a portion of their business to access these. “It is important for people to understand that we are not trying to take control away but are trying to remove the heavy lifting,” Wagstaff tells ASJ. “The alternative is to install additional systems and employ IT staff, quantitative analysts and business specialists – the cost of which could well be more than the cost of an outsourced trust-manager solution.” Annabel Powell, vice president and client executive at BNY in Sydney, adds: “It doesn’t have to be an all-or-nothing approach. We provide our clients with the opportunity to evaluate what capabilities they have in house to support the trust-management function, as well as looking at what they may benefit from by using an outsourced solution.” BNY’s own trust-manager solution has been tested on more than 1,000 transactions to ensure it best supports the day-to-day management of the trust and associated reporting. This includes rigorous modelling processes using bond-scrip 24 · Australian Securitisation Journal | Issue 16_2019

technology, with each transaction always modelled by two separate analysts on separate platforms and the waterfall run concurrently to ensure zero tolerance for error. Spreadsheets are a very archaic way to report when a superior solution is available, says Stafford Hamilton, Sydneybased chief executive at Credabl – a newly established specialist lender providing loans to medical professionals. “The need for accuracy is paramount,” he continues. “The market is not very forgiving, particularly for young businesses, as inaccuracy looks like immaturity. A business like ours has to aim for 99.9 per cent accuracy.” Ensuring the output is reliable, accurate and consistent is critical to warehouse and public securitisation transactions, Wagstaff adds. “Operating in Excel is clearly susceptible to human error. Our ASAP system, by contrast, uses a coding and bond-scripting mechanism to code transaction documents and thus eliminates entirely the potential for human error.” Securitisation is complex so the tailoring of securitisation programmes, whether they be brand new or existing, is important, argues Gary Sly, executive director, structured capital markets at ANZ in Sydney. “Simply duplicating existing structures without really thinking about bespoke needs is not appropriate,” he says. “This is not a one-size-fits-all solution, particularly in warehouses. The BNY execution team is hands on, building and testing bespoke models. All of this may seem very routine, but it is important in establishing accuracy of processes and ensuring the trust factor between parties is factored in.” It is possible to create value additional to a technical solution by creating trusted partnerships, Powell adds. “Understanding the commercial drivers and objectives of originators – above and beyond what is stated in the transaction documents – is critical to the success of an outsourced solution. It is important to incorporate the personal element, and we have considerable experience partnering with organisations in this way.”

OPPORTUNITY COST The Credabl business is in its infancy, at around 18 months old. Hamilton says working with large and well-known partners was crucial to improve the optics around the newcomer’s maturity. “The masthead is important because the quicker we could cross the divide of not being a new business, the more doors were opened.” Outsourcing was not a cost-trimming exercise for Credabl. “We take the view that we gain credibility that a business of our age may not otherwise have by allocating financial resources to this aspect,” Hamilton explains. “A new business with only a year or two of seasoning can be a difficult pill for the market to swallow. But we can augment our maturity by leveraging off our partners who have that experience.” Credabl has a warehouse facility and will likely access other forms of debt capital going forward. Hamilton suggests

that the decision to outsource “We have seen a raft of market changes, including the trust-management function new entrants to the structured-finance market. was relatively straightforward These participants have been looking closely at against this backdrop. how trust management is performed, reflecting “We are interested in future ways to diversify our funding the critical importance of this function.” and the team that will manage ANNABEL POWELL BNY MELLON this strategy is the same treasury team that takes care of the administrative functions pertaining to our portfolio. If we performed, reflecting the critical importance of this function. keep the administrative functions in house we can deploy our Originators now have a number of trust-management options analytical muscle elsewhere,” he explains. available.” Hamilton says the company may consider accessing The number of originators seeking funding from offshore markets or a wider range of funding structures. “We international markets has increased as origination volume are undergoing programme development at the moment, grows and issuers continue to seek out funding diversity. This part of which is to ease pressure inside the warehouse. This drives another level of complexity for businesses, Wagstaff undertaking is being made far easier by the fact that the trustadds, as offshore-market reporting requirements may vary by management function does not have to be front of mind.” jurisdiction. The market as a whole is headed in the direction Hamilton does not downplay the importance of this of global equivalence, and this requires reporting in global function to the optimal performance of the Credabl business. jurisdictions as well. He says the firm would allocate internal resources if they were Wagstaff adds: “These requirements continue to evolve deemed the best use of time. “The main consideration is cost and it is important to have sufficient scale to be able to see and the opportunity cost,” he insists. “The trust-management what’s coming and to respond accordingly. Having deals elements, when they are set up, are rigorous and repetitive. that resemble other transactions from the jurisdiction of We would rather use our processing power and resources for issuance as closely as possible – so in Europe considering the creation.” full requirement of regulation like STS [simple, transparent and standardised] – will ensure issuers tick the most boxes for DRIVERS OF CHANGE investors.” Market evolution is a notable driver of recent change to the Sly says an Australian financial-services licence (AFSL) to trust-manager role. Expectations around future development issue securities is necessary but securing one is not always mean an outsourced option bears closer consideration. front of mind for smaller originators. “Typically, the focus Sly says regulatory evolution has driven outsourcing for an AFSL has been in the context of public securitisations. strategies. He tells ASJ: “The major banks traditionally However, the need for hedging arises in warehouses and many undertook the function through in-house subsidiaries. structures issue securities so, strictly, a licence is required.” However, with the revision of APS 120 the Australian Hamilton points out that there are also personal-liability Prudential Regulation Authority stipulated that trust considerations, particularly for senior executives. “As a director managers have to treat assets as if they are their own. This of a business, I would prefer a competent professional to take is clearly punitive from capital-allocation and reporting responsibility for this. If I take this on as an individual without perspectives.” being as knowledgeable and there is fallout, it is on me.” ■ Sly suggests that externalising the function provides a DISCLAIMER: necessary external verification point in the contemporary Mellon is the corporate brand for The Bank of New York Mellon Corporation. Products environment. “It is vital to have checks and balances in place to BNY and services referred to herein are provided by The Bank of New York Mellon Corporation and its subsidiaries. Content is provided for informational purposes only and is not intended provide the trust factor in and around data.” to provide financial, legal or other professional advice. For more disclosures, see https:// Powell highlights the more mature state of the Australian www.bnymellon.com/us/en/disclaimers/business-disclaimers.jsp#corporatetrust. securitisation landscape as another focus for accuracy “A new business with only a year or two of of data. “We have seen a seasoning can be a difficult pill for the market raft of market changes, including new entrants to swallow. But we can augment our maturity to the structured-finance by leveraging off our partners who have that market. These participants experience.” have been looking closely at STAFFORD HAMILTON CREDABL how trust management is 25

COPUBLISHED

Q+A

ALAN CAMERON HEAD OF SECURITISATION MACQUARIE BANK RICHARD MAZZOCHI PARTNER KING & WOOD MALLESONS

NEW HORIZONS: CHINA’S GROWING ABS MARKET China’s asset-backed securities (ABS) market has experienced significant growth in recent years as part of a broader diversification and deepening of national capital markets, which over time has been supported by Chinese government initiatives. Alan Cameron, Sydney-based head of securitisation at Macquarie Bank, provides commercial perspectives on Chinese securitisation. Meanwhile, Richard Mazzochi, partner at King & Wood Mallesons in Hong Kong, discusses a range of legal and regulatory aspects as well as access information relating to this fast-growing and exciting market.

he growth of the Chinese ABS market has caught the eye of global market participants in recent times, but what is its history? ◆ MAZZOCHI Securitisation was first introduced in China through a pilot programme in 2005. But this was suspended in 2008 following the onset of the global financial crisis, amid concerns relating to the market for securitised assets. The pilot programme was reintroduced in 2012 with an initial quota of RMB50 billion (US$7.2 billion), which was then increased to RMB500 billion by China’s State Council in May 2015. Since then, the market has seen increased issuance volume, growth in

asset classes and structures, and greater offshore interest in onshore ABS. ◆ CAMERON China now has one of the world’s largest securitisation markets. We have witnessed significant development of the domestic Chinese ABS market as well as the commencement of foreign-investor participation via a number of officially approved cross-border channels. The growing China ABS market is also becoming more sophisticated with a broader universe of participants involved across a greater range of asset classes. You mention asset diversity. What types of assets have been securitised to date and what are some potential future asset classes?

◆ MAZZOCHI By the end of June

2018, corporate ABS – in other words, securities originated from nonfinancial enterprises – accounted for approximately 46 per cent of total ABS issuance in China. Meanwhile, ABS originated from banks and other financial institutions accounted for approximately 51 per cent. The underlying assets for corporate ABS are usually corporate debts and accounts receivable. The underlying assets for credit ABS are usually corporate and residential mortgages, and auto, consumer and other loans. Auto loans in particular have been a popular asset class in China. In recent years, with an increased focus on local-government debt levels, the Chinese government has started encouraging public-private partnerships (PPPs). In December 2016, the National Development and Reform Commission and China Securities Regulatory Commission (CSRC) issued a joint statement encouraging PPPs to raise funds by issuing ABS. This is designed to attract more private capital and accelerate return to investors. ◆ CAMERON Further to these comments, we see potential for the application of securitisation to some other interesting asset classes in China going forward. For example, there could be growing securitisation of supplychain-related receivables or cash flows between suppliers and purchasers of commodities, goods and services across the broader Chinese economy. Along the theme of initiatives to diversify funding of government assets and encourage PPPs, ABS could also be applied to fund infrastructure-related

“As the Chinese ABS market continues to mature and expand, we are seeing increased participation from a range of international institutions including foreign investors, financial institutions, international rating agencies and various service providers.” ALAN CAMERON MACQUARIE BANK

26 · Australian Securitisation Journal | Issue 16_2019

Key legal issues in Chinese ABS THERE ARE A NUMBER OF KEY LOCAL LEGAL ISSUES TO CONSIDER WHEN LOOKING AT THE CHINESE ASSETBACKED SECURITIES (ABS) MARKET, ACCORDING TO KING & WOOD MALLESONS.

Legal true sale A securitisation transaction involves a legal true sale of assets from an originator to a purchaser, usually a special-purpose vehicle (SPV) or a special-purpose trust (SPT). The China Banking and Insurance Regulatory Commission SPT structure and the National Association of Financial Market Institutional Investors asset-backed note structure provide a more robust true-sale analysis than the China Securities Regulatory Commission asset-backed specific plan (ABSP) structure. This is because the credit assets initially owned by the originator are entrusted to a trustee. The general consensus in the Chinese securitisation industry is that the existing trust regime in China is sufficiently robust to confer upon the trustee good title to any entrusted assets even after the insolvency of the originator.

Bankruptcy remoteness Traditional securitisation structures also contemplate the transfer of assets to either a bankruptcy-remote securitisation SPV or a trust. As there is no specific Chinese legal framework for the establishment of a securitisation SPV, the use of a trust is the preferred approach. Chinese trust law confirms that where a trustee, in its personal capacity, becomes insolvent, the trust assets held by it should not form part of the trustee’s insolvent estate.

Perfection requirements Under Chinese law, there is a distinction between the perfection entities by monetising high-quality, predictable cashflows. ABS has also provided Chinese banks with a useful risk-management tool by enabling institutions to securitise pools of nonperforming loans from time

of a sale of receivables as between the seller (the originator) and the purchaser (the trustee under an SPT or the administrator of an ABSP) and the perfection of a sale of receivables as between the purchaser and the underlying obligor. There are no specific perfection requirements prescribed by Chinese law. Notice to the underlying obligor is required pursuant to People’s Republic of China contract law to ensure the assignment binds the obligor. But this does not affect the validity of a transfer of receivables to the purchaser.

Transfer from originator to SPT or ABSP The execution of the trust agreement documenting the transfer of the underlying assets from the originator to the SPT, and the execution of the receivables purchase agreement along with the payment of the purchase price on the transfer of the underlying assets from the originator to the ABSP, is generally sufficient to ensure that the transferred underlying assets are beyond the reach of the originator’s other creditors.

Perfection as against the underlying obligor Chinese contract law requires notice to be given to the underlying obligor for the transferred receivables. If such notice is not given, the transfer is not effective as against the underlying obligor. Failure to give notice should not invalidate the transfer of receivables as between the seller and the purchaser of such receivables. Rather, the buyer to time. This could also prove to be a strategic option in the future. What kinds of asset-backed structural features and, in particular, product types can international

of such receivables is unable to sue the underlying obligor directly to recover amounts owed without first notifying the underlying obligor of such transfer. The common market practice for Chinese securitisations is that notice to the underlying obligor is not given until the occurrence of certain trigger events, such as a downgrade or insolvency of the originator or servicer. This is consistent with market practice in the Asia-Pacific region.

Transfer of security interest The nature of the underlying assets determines the additional perfection formalities, if any, that are required to transfer the security interest in most securitisation transactions involving the sale of receivables which are secured by underlying assets.

Commingling risk Where the originator acts as servicer in relation to the securitised receivables, collections are often commingled with collections from other receivables in the originator’s own collection account. Under Chinese law, in the event of the originator’s insolvency, such commingled amounts form part of the originator’s bankruptcy estate. Existing market practice is to mitigate commingling risk by the originator arranging for periodic transfers of collections from the originator’s own collection account to the purchaser’s account, and the originator notifying each underlying obligor to pay directly to the purchaser if the originator’s credit rating falls even further or if the originator becomes insolvent. market participants expect to encounter that are unique to the Chinese securitisation market? ◆ MAZZOCHI There are three main securitisation frameworks in China. The first is the China Banking and Insurance 27

COPUBLISHED

Q+A

Regulatory Commission (CBIRC) special-purpose trust (SPT) structure. This typically involves the entrustment of certain credit assets originated by CBIRC-regulated financial institutions to an SPT, which will form the basis of the receivable pool backing the issuance of ABS on the China interbank bond market (CIBM). ABS currently issued in the CIBM are all collateralised loan obligations. Then there is the CSRC asset-backed specific plan (ABSP) structure. This structure is limited to assets originated by nonfinancial institutions. ABSPs are used to ring-fence underlying assets and are subject to complex operational controls set out in the transaction documents. ABS issued under this

that support the establishment and management of ABS transactions. Over time, we expect to see an increasing harmonisation of structures and practices between Chinese and international ABS. This will in turn promote increased cross-border activity. If they are interested in the product offering or its future potential, how do overseas investors go about accessing the market? ◆ MAZZOCHI Foreign investors can access China’s ABS market through three main channels. The first, and perhaps best known, are the qualified foreign institutional investor (QFII) and the RMB qualified foreign institutional investor (RQFII) schemes.

Chinese funds-management companies, securities companies, commercial banks and insurance companies. Another is financial institutions that are registered in and have their principal places of business in an approved jurisdiction. Finally, there are companies that have their principal places of business in an approved jurisdiction and that engage in asset-management business activities pursuant to a licence granted by the securities regulator in that jurisdiction. As is the case with the QFII scheme, to be eligible, the RQFII applicant must meet certain qualitative and quantitative requirements. Aggregate investment quotas are allocated to approved offshore jurisdictions and individual investment quotas are

“The underlying assets for corporate ABS are usually corporate debts and accounts receivable. The underlying assets for credit ABS are usually corporate and residential mortgages, and auto, consumer and other loans. Auto loans in particular have been a popular asset class in China.” RICHARD MAZZOCHI KING & WOOD MALLESONS

structure can be freely traded on China’s exchange-traded bond market. Finally, there is the National Association of Financial Market Institutional Investors (NAFMII) assetbacked note (ABN) structure. This involves the issuance of ABNs – which are fixed-income structured instruments – by nonfinancial enterprises in the CIBM. They are subject to a series of rules promulgated by the People’s Bank of China (PBOC) and the NAFMII. What is the status of – and prospects for – international participation in the Chinese ABS market? ◆ CAMERON As the Chinese ABS market continues to mature and expand, we are seeing increased participation from a range of international institutions including foreign investors, financial institutions, international rating agencies and various service providers 28 · Australian Securitisation Journal | Issue 16_2019

The QFII scheme enables certain types of foreign institutional investors – such as asset-management, insurance and securities companies – and commercial banks to use their offshore foreign currency to invest in Chinese equities and bonds (including ABS) that are traded on the CIBM and the Shanghai and Shenzhen stock exchanges. Each investing firm must also meet certain qualitative and quantitative requirements. Investment quotas are allocated to each approved institutional investor. RQFII is a modified version of the QFII scheme that facilitates the use of RMB held by foreign institutional investors outside mainland China for making these types of investments. Several types of foreign investors are eligible for the purposes of the RQFII scheme. One is companies in an approved jurisdiction that are subsidiaries of

approved by the State Administration of Foreign Exchange. These are assigned separately for each approved investor within each jurisdiction based on factors such as the investor’s assets under management. Another way for international entities to access the Chinese market is the CIBM direct-access scheme. This scheme was established by the PBOC and allows a broad range of foreign institutional investors to invest in bonds, including ABS, and other financial products that are traded on the CIBM. The entities covered include central banks, international financial institutions, sovereign-wealth funds, financial institutions such as commercial banks and insurance companies, QFIIs and RQFIIs, each of which must also meet certain qualitative and quantitative requirements.

Key structural features and trends CHINESE ASSET-BACKED SECURITIES (ABS) TRANSACTIONS ARE INCREASINGLY ADOPTING WESTERNSTYLE STRUCTURES AS THE MARKET MOVES TOWARDS FULL INTERNATIONALISATION. THERE ARE SIX KEY DEVELOPMENTS IN THIS RESPECT. The first is reserve-account requirements. For some of the new auto-loan securitisations being issued in China, multiple reserve accounts cover liquidity, tax, appointment of backup servicers and set-off risk. The size of these reserve requirements increase with the breach of each downgrade trigger. Next is servicer downgrade mechanics. To mitigate servicer counterparty risk, most Chinese securitisations have multiple downgrade triggers. Chinese securitisation is also adopting clean-up calls. Originators of Chinese credit-card and auto-loan receivables typically have a right to buy back all securitised receivables if the receivable pool balance falls below 10 per cent of the original pool balance or the outstanding principal balance of all

Finally, there is Bond Connect. The northbound trading component of the mutual bond-market access scheme between mainland China and Hong Kong allows a broad range of foreign institutional investors – in fact the same as for the CIBM direct-access scheme – to invest in bonds, including ABS, that are traded on the CIBM. Key features of Bond Connect include convenience and relative ease of access. Therefore, Bond Connect is suitable for foreign investors that are not experienced in dealing with Chinese intermediaries and Chinese law documents, and that prefer to interact with Hong Kong intermediaries in English. There is no investment quota limit for Bond Connect according to the rules and regulations that have been published to date. The scope of application, rules and conditions that apply to each of these channels is slightly different,

the senior notes has been reduced to zero and if the subordinated notes are all held by the originator. Fourth is risk-retention requirements. For securitisations using the China Banking and Insurance Regulatory Commission (CBIRC) special-purpose trust (SPT) structure, the originator is required to retain at least 5 per cent of its total credit-risk exposure to the underlying assets by way of a “horizontal slice” or a “vertical slice”. “Horizontal slice” requires the originator to hold part of the junior tranche with a total nominal value of no less than 5 per cent of the total issuance size. “Vertical slice” requires the originator to hold, in addition to at least 5 per cent of the junior tranche, a similar proportion of each senior class

and each has its own advantages and disadvantages. They are also generally not mutually exclusive. Overall, which channel or combination of channels is deemed most appropriate for a particular foreign investor depends on, among other things, the types of financial products in which it wishes to invest, its investment strategy, and its currency and FX hedging preferences. Another relevant factor is whether the foreign investor is experienced in dealing with Chinese intermediaries and Chinese law documents or prefers to interact with Hong Kong intermediaries in English. ◆ CAMERON Over time, and as the level of experience and sophistication in the Chinese ABS market deepens, we expect to see increased tranching of structures between senior, mezzanine and subordinated notes to place parts of transactions to different pools of

notes, such that the total risk retention is no less than 5 per cent of the total issuance size. All the notes held by the originator to satisfy the risk-retention requirement must be held to maturity. The market is also offering enhanced information disclosures. The information disclosures in relation to Chinese ABS are becoming more standardised and enhanced. Finally, credit ratings are becoming more common. Securitisations using the CBIRC SPT structure are required to be rated by two rating agencies that are qualified in China – one appointed by the originator and an independent rating agency. A number of Chinese ABS are being rated by international rating agencies nowadays, which will encourage more foreign investor participation in Chinese securitisation.

investors with differing risk-return mandates. This will be a healthy development as it offers increasing structural flexibility to ensure best execution for Chinese ABS issuers going forward. It could eventuate that foreign investors also look to participate in these different tranches of Chinese ABS deals. Overall, the prospects for continued growth of the Chinese ABS market look very encouraging. ■

For further information please contact: Alan Cameron Head of Securitisation; Commodities and Global Markets Macquarie Bank alan.cameron@macquarie.com +61 2 8232 8427 Richard Mazzochi Partner King & Wood Mallesons richard.mazzochi@hk.kwm.com +852 3443 1046 29

COPUBLISHED ROUNDTABLE

Securitisation symposium In April, KangaNews and the Australian Securitisation Forum (ASF)’s Women in Securitisation subcommittee gathered market leaders to discuss the challenges facing the industry. PARTICIPANTS ◆ Natalie Edwards Chief Investment Officer MANNING ASSET MANAGEMENT ◆ Melissa Foster Director, Structured Funding and Capital WESTPAC BANKING CORPORATION ◆ Debbie Long Director, Treasury and Securitisation RESIMAC ◆ Sally Ng Director, Debt Markets Securitisation COMMONWEALTH BANK OF AUSTRALIA ◆ Lillian Nunez Investment Director, Debt Investments IFM INVESTORS ◆ Karolina Popic Partner ALLEN & OVERY ◆ Trudy Weibel Director DEUTSCHE BANK MODERATORS ◆ Helen Craig Senior Content Manager and Deputy Editor KANGANEWS ◆ Belinda Smith Chief Executive ETICORE and Chair AUSTRALIAN SECURITISATION FORUM WOMEN IN SECURITISATION SUBCOMMITTEE

HOUSING MARKET Smith What sort of impact are perceptions of the

Australian housing market having on offshore demand? ◆ NUNEZ

There are some concerns over the speed at which property prices are declining in some areas. This fall has been quite fast relative to past cycles and we do not know how much further it will go or for how much longer it will continue. However, fluctuations in house prices do not necessarily have a direct impact on households. There are discussions about the negative wealth effect, but owner-occupiers have to live somewhere. Eastern capital cities comprise around 60 per cent of residential mortgage-backed securities (RMBS) portfolios and there is record low unemployment in New South Wales and Victoria, so there are positives to prop up the position. This is also a different scenario from the foundations of the subprime crisis in the US, where owners threw away their keys and did not pay back their debt. There is full recourse to other assets in Australia. 30 · Australian Securitisation Journal | Issue 16_2019

◆ POPIC

The full-recourse point is an important one and it ties into the investor-education piece. Since the financial crisis, we have been speaking to several offshore banks looking to invest in Australian RMBS. An absolute focus has been understanding the full extent of the lender’s rights to go after the borrower. It is an important differentiator.

Craig Do offshore investors have a sufficient

depth of understanding about the Australian market backdrop? ◆ LONG

I think there is a lot of erroneous media that investors will latch on to. The housing market will always go up or down, but taking the time to explain to investors how we as an issuer are adhering to responsible lending practices enables them to become more comfortable. To be clear, we haven’t had feedback that investors don’t want to invest based on the contents of a news article. But media does bring about questions that we feel are important to address. ◆ FOSTER We get the sense that offshore investors are broadly comfortable with the current house-price correction. In some ways it would be a harder conversation to have if house prices were still rising by 20 per cent a year. Now we are talking about an orderly correction after many years of growth and use of macroprudential measures. ◆ NUNEZ I would say, though, that the environment is a bit different now. Defaults are not rising materially but the lossgiven-default scenario is different. We are mindful of this and of the impact it has on consumers. Households are stretched and Australian households are among the most leveraged in the globe. There could be further implications for employment if this has a knock-on effect into retail and other sectors, and it makes us somewhat more cautious around where we are investing. ◆ EDWARDS I agree that we are seeing a weakening of macroeconomic indicators which we need to watch carefully – even with the extremely good structural protections inherent in RMBS.

REAL-MONEY ENGAGEMENT Smith For many years the Australian

securitisation market has been trying to engage more with real-money investors. How would you go about trying to improve this engagement? ◆ LONG

At Resimac we accept that some investors will take time to become comfortable and understand the sector. This education process involves an open-door policy – which we have always maintained – for the purposes of onsite investor due diligence, attendance at conferences and conducting nondeal roadshows. We find that regular investor contact even outside of a deal is beneficial to the ongoing relationship.

We issue frequently but it takes time to get new investors across the line. The more time we spend educating investors the more it helps to provide confidence in our business. We may not see them in the next deal or even in the one after that, but we might in the deal we do next year. My sense is that investors have appreciated the time we have spent with them. ◆ NUNEZ I think this is a very responsible approach. As a realmoney investor, it is very important for us, and the clients we represent, to be educated in advance. The days of “today is the roadshow, we’ll be pricing a transaction tomorrow” are gone, especially in an environment where there is more caution around the business environment, geopolitical risk, economic growth and the housing market. To this end, telling an offshore investor the real story around low unemployment, inflation, interest rates and houseprice direction is very important because all they tend to see are the headlines. It is crucial for investors to drill down well beyond the headline news. We receive calls from investors in our securities who have seen news headlines that are often alarmist and misguided. We need to be able to provide a rational response that provides the facts rather than an emotive headline. ◆ FOSTER I agree that it takes time to bring new investors into an RMBS programme, particularly offshore investors. We must provide education on the fundamentals first – the economy and the housing sector. This is followed by information about the issuer and then the deal itself. It can take years to get some investors to this point. Even when they finally get there, issuers need to roadshow regularly and provide updates to their investor base.

Popic The ASF has been heavily involved in

Japanese investor engagement over the last decade. Is there more of a role for the industry association to play in educating offshore investors more broadly? ◆ LONG

We recognise the work the ASF already does. The rating agencies do this too, and it offers a valuable independent perspective. It requires an industry effort to increase the level of education. ◆ EDWARDS I agree that the results will be more effective if the message is spread by a wider range of parties. For example, Manning Asset Management focuses on the private-debt space

and there are a number of potential investments we can consider. The more background we receive on an issuer, its operations and the legal structure and underlying collateral of a deal to help us undertake our due diligence and get comfortable, the quicker we can make an investment decision. Offshore investors likely have competing investments in different jurisdictions to consider and may not be as familiar as domestic investors with the background, intricacies and performance of the Australian securitisation market. Increased information and education from a range of sources on an ongoing basis should help build familiarity and comfort – with the broader market and the specific proposition.

Craig Has tightened regulation around the

provision of research made this education piece more difficult? ◆ WEIBEL The amount and type of information about issuers and transactions that banks can put into the market is far more restricted today than it used to be. It is the same with regard to which people with which roles at the bank are allowed to author such information. I used to write research articles in my role within a business unit rather than under an official research provision. That set up is unthinkable these days. The best we can do is go with the issuer to talk to investors about a transaction. This means it is far more challenging to engage investors on deals because they have little detailed knowledge of the issuer and only general material. We also have to be very clear that the general material we are presenting is not research.

“THE MORE TIME WE SPEND EDUCATING INVESTORS THE MORE IT HELPS TO PROVIDE CONFIDENCE IN OUR BUSINESS. WE MAY NOT SEE THEM IN THE NEXT DEAL OR EVEN IN THE ONE AFTER THAT, BUT WE MIGHT IN THE DEAL WE DO NEXT YEAR.” DEBBIE LONG RESIMAC

COPUBLISHED ROUNDTABLE

Balancing act THE AUSTRALIAN BUSINESS SECURITISATION FUND (ABSF) IS A GOVERNMENT INITIATIVE TO INVEST IN WAREHOUSE FACILITIES AND SECURITISATIONS BACKED BY SME LOANS. IT WILL PROVIDE FUNDING FOR SMALLER BANKS AND NONBANK LENDERS TO ON-LEND AND ALSO AIMS TO CATALYSE A LARGER PRIVATESECTOR MARKET FOR SME LOANS.

Smith How do you think the Australian Office of Financial Management (AOFM) should manage the fund best to support the availability of finance to SMEs and, in particular, to do so in a way that encourages the development of a market that does not need long-term government involvement? LONG The fund will be credited

with A$2 billion (US$1.4 billion) between 1 July 2019 and 1 July 2023, with A$250-500 million per year being allocated for funding in a schedule which has been set by Commonwealth Treasury. In line with the way it acted in supporting the residential mortgagebacked securities (RMBS) market following the financial crisis, I would like to see the AOFM being more flexible than prescriptive with its support. It would be better if it could offer as much support as possible in the fund’s early existence and gradually exit after gauging the reception. We learned from the way

the AOFM managed the RMBS portfolio that being more flexible than prescriptive best supports the sector. WEIBEL I believe the ABSF is a very important initiative. It is an asset class that requires this level of support. Given this is taxpayers’ money, I would expect the bulk of the capital to support senior and warehouse funding in the first instance. Furthermore, I agree with Debbie Long that the AOFM providing the funds it can invest in a year in equal twelfths will not be the most effective use of the money. This is because the funding is most needed right now for issuers that aren’t ready to go to public term markets due to lack of track record and depth of data history. As a result, flexibility of the government support scheme is particularly important. EDWARDS For the ABSF to be sustainable, the AOFM needs to be careful that it does not disadvantage or supplant current real-money market participants and that it prices for risk appropriately – also noting taxpayers’

“For the ABSF to be sustainable, the AOFM needs to be careful that it does not disadvantage or supplant current real-money market participants and it prices for risk appropriately.” NATALIE EDWARDS MANNING ASSET MANAGEMENT

Our approach now is to meet investors – directly or as part of a roadshow with an issuer – to share any insights. We now demarcate clearly any research under the official provision at all times. Reports from rating agencies are therefore appreciated by the industry as a source of information, independent of parties immediately associated with deals. ◆ FOSTER There is a lot of publicly available data on securitisation, such as loan-level data. There is also ratingagency analysis and some houses provide analyst research. 32 · Australian Securitisation Journal | Issue 16_2019

money is being used. This latter point may be somewhat of a challenge given the more esoteric nature of this asset class and the likely limited track record of newer entrants. There are a few barriers to securitisation for smaller or newer companies that may not have considered this funding route before. These include understanding the terminology, technology and operational implications. In addition, the level of detail and transparency required in the data may be challenging for some of these firms. This can be a significant barrier to entry. So support and education are also needed for the sector as well as the important funding the ABSF is providing.

Craig The other challenge, as Natalie Edwards points out, is the idea of the government using taxpayers’ money to support the small-business community. The support is obviously understood – the funding cost for small businesses should be cheaper. But what happens to the cost of funding when the government steps away? EDWARDS This is true – it will be a

delicate balancing act to ensure it has the desired effect. But it is an important initiative.

What has reduced is the intermediaries that bring it all together. Investors require very detailed data for their credit work and because regulation requires it, but the operating environment has become far more complex. ◆ LONG We have found that it is helpful for investors if one of the banks brings an economist to a meeting. This means the investor isn’t relying only on the issuer’s view. The bank economist can provide the house view and the investor appreciates having a quasi-independent assessment.

“THERE IS A LOT OF PUBLICLY AVAILABLE DATA ON SECURITISATION, SUCH AS LOAN-LEVEL DATA. THERE IS ALSO RATING-AGENCY ANALYSIS AND SOME HOUSES PROVIDE ANALYST RESEARCH. WHAT HAS REDUCED IS THE INTERMEDIARIES THAT BRING IT ALL TOGETHER.” MELISSA FOSTER WESTPAC BANKING CORPORATION

Craig Many Australian issuers have done a lot of

work on offshore investor engagement and some are offering foreign-currency tranches in their deals. How far along is the progress of global investor engagement? ◆ LONG

The offshore component comprises more than 50 per cent of our issuance, so the international investor base is significant. We invest a lot of time and resources cultivating foreign-currency demand and we would like to see the major banks issue RMBS into offshore markets to support the work we have done. I appreciate they have other funding options, but global investors ask about this and it would be a significant driver of market development. ◆ FOSTER From a securitisation perspective, Australia is one of the larger nonagency securitisation jurisdictions. More than 75 per cent of the investors that participated in our most recent RMBS were from offshore. However, offering foreign-currency issuance has always been tricky for us due to the cost of the cross-currency swap. Also, as Debbie Long points out, as a major bank other products – such as covered bonds – are more cost effective. This is not to say this dynamic couldn’t change going forward. ◆ NUNEZ Australian securitisation is a great diversifier for global investors. We have been engaging with offshore clients for a while now and they are attracted to the sector from a relative-value perspective. Notwithstanding some negative media, they see good baseline economic factors that support the RMBS market compared with assets they have access to in other markets. There is compelling value in Australian RMBS when we compare risk and reward on a relative-value basis. It is easy to see why offshore investors are attracted to it, particularly in the senior mezzanine tranches. We engage with offshore

clients around this part of the capital structure and believe this is a great opportunity for issuers. ◆ EDWARDS It is worth reiterating to offshore investors the very robust credit performance in Australian securitisation before, during and since the financial crisis. ◆ FOSTER As Westpac Banking Corporation issued its first RMBS 30 years ago, we have a reasonably long history of issuance and performance. This helps attract new investors. ◆ POPIC From a legal perspective, Australian issuers are well versed in global regulation and ensuring that, where possible, they do not leave offshore investors behind by not meeting their basic requirements. This has been demonstrated most recently with the new EU regulation that came into effect in January. All public issuance by nonbanks this year has been compliant, to appeal to the widest possible investor base.

SECONDARY LIQUIDITY Craig Part of the challenge in attracting real

money is secondary-market liquidity, which is perceived as being inferior in securitisation relative to vanilla bond product. Can the industry do anything to promote liquidity? ◆ WEIBEL

I would argue that secondary liquidity is not as bad as some people make out. The securitisation universe is smaller and, accordingly, so is liquidity. It is obvious that liquidity disappears when times become tough. But it is no different with corporate bonds. It doesn’t matter where you go, liquidity sometimes disappears very quickly. However, anything the industry can do to help clarify and improve the integrity of its data could help support liquidity. Lack of data means pricing levels are not always obvious and there can be uncertainty around how levels are set.

“WE ARE SEEING MORE PRIVATE WAREHOUSING TRANSACTIONS WITH DIFFERENT ASSET CLASSES. ALTHOUGH THESE ASSET CLASSES ARE NOT YET PUBLIC DEALS, TO GET TO CRITICAL MASS TAKES TIME AND I AM HOPEFUL THAT AT SOME STAGE WE WILL SEE THESE MORE ESOTERIC ASSETS COME TO MARKET.” KAROLINA POPIC ALLEN & OVERY

COPUBLISHED ROUNDTABLE

◆ WEIBEL

◆ LONG

We recognise liquidity as an inhibitor to investors. While bank-provided rate sheets are helpful, some investors have to be able to obtain a genuine bid for their held paper for their accounting purposes. We understand that larger deal sizes – and therefore more investors – tend to help with liquidity. So is making historical deal information and data publicly available so the potential secondary-market investor can conduct analysis. It’s possible that the liquidity issue has led to the large portion of our investors that are buy-and-hold, and that this of itself contributes further to the issue of illiquidity. ◆ NUNEZ Liquidity is in the eye of the investor. We are always mindful of ensuring our end-investor clients are aware there may be less liquidity in securitisation than cash-type products. It is important to be open around the bucket the asset class falls into and that clients know they should probably be looking elsewhere if they require daily liquidity. However, we continue to find that securitisation has natural liquidity in its amortising structure. RMBS with a four- or five-year weighted-average life will pay down quickly. In this respect it compares favourably with a longer-dated infrastructure asset, for example. If the investor is aware of the lack of liquidity on a daily or weekly basis, natural amortisation can work to generate stable cash flows.

Popic Would issuing bullet bonds via a product

like a master trust improve liquidity?

Part of the liquidity story is how readily a product is traded. Unlike a corporate bond – where the main driver is its rating and thus pricing decisions are swiftly made – trading in securitised bonds requires an understanding of the underlying transaction structure. Accordingly, a bullet structure on a securitised bond may not achieve much by way of increased liquidity in and of itself. However, the relevance may well lie with its impact on swaps. Bullet bonds that are not pass through, possibly have fixed coupons and can be denominated in another currency significantly widen the investor universe. ◆ NUNEZ Again, it comes back to the requirement for liquidity on the investor’s part. Bullet maturities or soft-amortisation assets can work to provide offshore investors certainty on repayment profiles. But it is important to understand transaction mechanics and cash flows to ensure this works for their individual needs. It is worth noting, though, that IFM Investors (IFM) does not view a master-trust structure as an acceptable vehicle for the issuance of notes for many assets that are securitised – including mortgages.

Smith Are offshore investors concerned about

liquidity in Australian securitised product? How do issuers respond? ◆ LONG

It is a question they ask. But it tends not to be because their intention is to sell the bonds. Rather, it is so they can genuinely mark their books. ◆ FOSTER We try to keep our transactions consistent. We want them to be predictable and vanilla so investors are required to carry out minimal credit work to be able to understand the differences between pools, and for consistency to support performance over time. ◆ NG In trying to engage new real-money investors we have, in the past, structured transactions to their specific requirements. For example, there might be a particularly short tranche to attract an Asian or Japanese investor. But we generally see issuers routinely using very similar structures.

EXPANDING THE ASSET BASE Smith There has been a lot of talk for a long time

about broadening the asset base of Australian

“THERE ARE SOME CONCERNS OVER THE SPEED AT WHICH PROPERTY PRICES ARE DECLINING IN SOME AREAS. THIS FALL HAS BEEN QUITE FAST RELATIVE TO PAST CYCLES AND WE DO NOT KNOW HOW MUCH FURTHER IT WILL GO OR FOR HOW MUCH LONGER IT WILL CONTINUE.” LILLIAN NUNEZ IFM INVESTORS

34 · Australian Securitisation Journal | Issue 16_2019

asset-backed securities (ABS) product, yet what we have is still predominantly an RMBS market. Will a more diverse asset base naturally evolve and can anything be done to expedite it? ◆ EDWARDS

We have seen a pull-back in lending to certain sectors and borrowers by some of the banks as a result of a number of factors – including the royal commission. But companies still need funding and they have been seeking it elsewhere. Instead of taking out a bank facility, we have seen some organisations trying to pursue securitisation or warehouse funding for the first time. Clearly the usual considerations of cost and terms and conditions apply, and securitisation is not suitable for every company or every form of asset. But it is one of a number of potentially viable and attractive funding tools. Investor appetite is obviously crucial and organisations that pursue this path for the first time will need to spend time bringing investors up to speed. However, I believe securitisation will become more attractive to organisations that may not have previously considered it.

Smith Do you expect this to emerge as true

securitisation funding or in the form of structures related to securitisation? ◆ EDWARDS

Use of securitisation technology is growing. We are seeing structures that don’t necessarily require or have all the bells and whistles of a standard public securitisation but still seek to give investors comfort around asset-level recourse – in particular, exposure to asset-class performance. ◆ POPIC Notwithstanding that our public market is dominated by RMBS and auto ABS, we are seeing more private warehousing transactions with different asset classes. Although many of these asset classes are not yet public deals, to get to critical mass takes time and I am hopeful that we will see these more esoteric assets come to market at some stage.

to do so they need access to asset-performance history and volume. Without this, it is difficult for many to justify the cost and time of setting up securitisation structures and ratings. Significant interest from institutional investors is less likely without the rating. ◆ WEIBEL Latitude Financial Services was able to start issuing credit-card ABS in Australia immediately because the company had many years of data. Where firms don’t have access to this granularity of data, public securitisation won’t be a viable first funding option. But there are others, including traditional warehouses and club deals with two or three parties. By the time these companies have been operating for four years they will have data with which to seek a rating and term funding with an institutional investor base. In this sense, our role is to handhold. It is clear that there are many different forms of structured funding available to potential issuers and our industry should have greater confidence to use them. We have received considerable reverse enquiry of this nature in the last couple of years. These are tools we understand, so let’s use them for a market segment that will benefit until these companies mature and can access public term funding. ◆ LONG Funding for credit cards and autos has predominantly come from the banks, hence we haven’t seen much public issuance. However, the royal-commission era has caused banks to attempt to divest certain parts of their businesses and, over time, nonbanks are beginning to take on these assets. In the longer term I feel confident that the range of asset classes we see in public securitisation will grow.

Craig Some institutional investors, including

Ng Are these structures rated?

IFM, have investments in unrated warehouse assets. Is this predominantly a way of getting access to higher-yielding alternatives or to enable priority access to term funding further down the track?

◆ POPIC

◆ NUNEZ

Sometimes, but often not. The rating criteria for esoteric asset classes in Australia are not as developed as jurisdictions with a history of issuance in volume and appetite from investors. The US is a great example. This needs to change, and there is much talk of challenger banks and fintechs coming into the Australian market. But ◆ NG

We have multiple reasons for investing into warehouses, which reflect the different evolutionary stages of the warehouse and the underlying issuer’s business. For some mature businesses that have been operating in the market for a number of years, we are in their warehouse for some extra spread and to participate in the term-outs when

“IT IS CLEAR THAT THERE ARE MANY DIFFERENT FORMS OF STRUCTURED FUNDING AVAILABLE TO POTENTIAL ISSUERS AND OUR INDUSTRY SHOULD HAVE GREATER CONFIDENCE TO USE THEM. WE HAVE RECEIVED CONSIDERABLE REVERSE ENQUIRY OF THIS NATURE IN THE LAST COUPLE OF YEARS.” TRUDY WEIBEL DEUTSCHE BANK

COPUBLISHED ROUNDTABLE

Industry outlook THE ROUNDTABLE DISCUSSION BROUGHT TOGETHER A RANGE OF WOMEN WHO HAVE BUILT SUCCESSFUL CAREERS IN THE SECURITISATION INDUSTRY. THEY SHARE THEIR JOURNEYS AND THEIR VIEWS ON HOW BEST TO BUILD DIVERSITY IN THE SECTOR.

Smith We have an experienced group of participants at this discussion. What first attracted each of you to a career in financial markets?

LONG I completed a PhD in an unrelated

topic and realised that the isolating nature of academia wasn’t for me. But I had very much enjoyed the economics aspect of my studies and thought that finance as an alternative to academia would be a good choice. Similar I’m sure to others, I really fell into the securitisation industry through my first job. NG I came to Australia as a foreign student and was looking for a job to support my studies financially when a British investment bank offered me a full-time role. The institution I joined was initially small but very inclusive. As I was undertaking a commerce degree, I was invited to stay on after I graduated. Securitisation is a very exciting industry to be involved in. I have been very lucky throughout my career in finance to work with people who have always been supportive of me. POPIC I always thought I would work in a bank. As I progressed through my combined commerce and law degree, I found more and more that as I interviewed with banks I was asking about their legal department. It dawned on me that it was the law that was attracting me to banking. Eventually I fell into securitisation. I enjoy working in the industry. It is very collegiate and solutions-oriented.

I feel the same as Sally Ng does, in the sense that I have been very lucky with the organisations and people I have worked with – they have been inclusive and I have felt like it was a meritocracy. EDWARDS I trained as a chartered accountant and a chartered tax adviser, so I like numbers and structure diagrams! I was offered a role in the whole-business and commercial mortgage-backed securities team at Royal Bank of Scotland in London in 2003. There is always new activity happening in securitisation, be it legislative or regulatory change, issuer activity, credit appetite, new investors and asset classes, performance trends or different structuring techniques. Nothing stays static, which for me is great – it keeps things challenging and interesting. NUNEZ My first role was in a family accounting business, after which I joined the accounting team at Credit Suisse. An opportunity to join the credit team arose, providing analysis on mining companies and corporates. I found it very interesting reviewing businesses to understand their aims and objectives, and potential risks and rewards. After six years at Credit Suisse, I moved to ME Bank’s securitisation business and then to its newly formed investments arm, which later transferred to IFM Investors (IFM). WEIBEL The securitisation industry has complex structures and those who

we need extra stock. For smaller players that do not term out, we will be there for the extra spread and diversification into either different asset types or different originators. For other businesses that are just starting their journey, we can be involved at a senior level to grow with the business over time. In this modern world of fintechs and market 36 · Australian Securitisation Journal | Issue 16_2019

succeed in it are more often than not people who can work these through. If an industry is merit-based, women have a better chance to succeed. It’s not a matter of who shouts loudest or of having the right connections.

Craig How would participants characterise the industry’s evolution in respect of diversity during your careers? FOSTER I began in securitisation at

Westpac Institutional Bank in a predominantly male team, and the team I work in now is mostly female. Across both teams, the increase in flexibility in the workplace has helped to support better diversity. One example is paternity leave. This was previously a luxury whereas maternity leave was accepted. It is now more accepted for men to take newfamily-related leave. This has helped to keep women in the industry and connected with it – and able to juggle work and life more effectively. LONG I agree that there is probably more flexibility in the securitisation segment of the finance industry than in, say, trading – which remains more maledominated. Through my career I have noticed that the male-female ratio within the teams I have worked in has more or less equalled out, but gender diversity is still lacking at a more senior level. I am not sure this is due to deliberate discrimination, but lack of diversity at a senior level is certainly noticeable. POPIC We have good, senior female role models in securitisation. I think this is one of the defining aspects of our industry. From the start of my career, I worked with senior women at some of the banks who were instrumental in shaping the securitisation market and were aspirational. It was encouraging

disruptors, this gives us access to asset classes that were previously inaccessible – and generally at a yield that is attractive to us. These are often complex assets and businesses, and it takes time and resources to undertake the due diligence to fully understand the risks. It is not a quick and easy decision, but

and a differentiator for me. We continue to have prominent senior female role models and this has improved somewhat over the years. We are doing better than other areas but there is by no means parity in the ranks. WEIBEL The securitisation industry isn’t as large as some others and it doesn’t have a notable hierarchy, so the usual gender stratification plays less of a role – from the bottom to the top women are fairly well represented. Proportionately, there are far fewer women in banking more broadly than there are in the securitisation sector. NUNEZ There has been a change at IFM but it has been subtle and I agree that it comes down to different markets and different segments. There is still a very small number of women in capital markets and we largely see men on trading floors. IFM is trying to change this dynamic and the firm is making great strides, but it is challenging. Part of the difficulty is having a pipeline of hires. The solution is to build the pipeline. To do this we need to figure out how to engage young women leaving university. We need to make securitisation more appealing.

Craig How might the industry go about making a securitisation career more attractive? NUNEZ It is important we make young

women aware that the securitisation market is a positive career choice. Initiatives such as the “bring your daughter to work day” certainly help. University students tend only to hear about large accounting and legal firms, corporate finance or investment banking. They don’t hear about the nuance in our market, so making them more aware that our industry is interesting and dynamic is important.

“CommBank promotes a recruitment programme that draws from a diverse range of universities. We don’t just want people who studied commerce or law at University of Sydney.” SALLY NG COMMONWEALTH BANK OF AUSTRALIA EDWARDS I completely agree about

raising awareness of securitisation as a career choice and the myriad of interesting opportunities it offers. I also think initiatives by the Australian Securitisation Forum are important in ensuring there is a forum for women to be heard and for the industry to be promoted. LONG Women have children and are replaced by younger people, which may be why we don’t see as many women in leadership positions. It is important to recognise that flexible working is not only acceptable but legitimate and viable. FOSTER I think we need to embrace the idea that the best person for the job doesn’t necessarily look like the same person as the one that just left it. It is important to break down what the job really needs. NG This is a very good point. Commonwealth Bank of Australia (CommBank) promotes a recruitment programme that draws from a diverse range of universities. We don’t just want people who studied commerce or law at University of Sydney. Graduates from other disciplines bring a different and welcome perspective. WEIBEL Diversity in educational background works to the industry’s advantage. Historically the industry wanted homogeneous types so people would work on a standalone basis. Nowadays it wants the opposite – for people to work more closely together.

we find alternative asset classes really quite interesting at the moment. ◆ EDWARDS Issuers are learning that they need to be patient, make sure their origination and servicing practices are robust and build their track record. An investor that does its due diligence and likes the investment proposition will be more

Smith What are the biggest remaining hurdles to achieving acceptable gender balance? NUNEZ We have to make more noise.

Human nature leads people to pick similar people to interview for roles. One way IFM is trying to achieve acceptable balance is to aim for diversity in interview candidates – with the goal being gender balance in all interviews. NG Our team consists of a diverse group of people from various backgrounds. CommBank encourages diversity when employees are invited to represent the company, internally or externally, as the bank wants to see individuals who represent our diverse workforce. This is a priority consideration. In the past few years I have been conscious of more requests for female representation on panel sessions. The balance is improving, but it could move faster. POPIC In the legal industry the number of female lawyers at junior associate level equals or exceeds male lawyers. But this is not being translated into the partner numbers. Flexibility is an issue and we have taken steps on this front. But the thing that will move the dial is changing the way we support our women – including sponsorship internally, having open and honest conversations about career aspirations and finding a career trajectory that works for the individual.

willing to provide funding through warehousing or private placements. I think, over time, more new issuers will come to the public securitisation market because securitisation is, at the end of the day, an attractive source of funding and a welltravelled route. ■ 37

ISSUER PROFILES

ANZ BANKING GROUP

AMP BANK AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

YES

AUSTRALIAN ADI

PROGRESS

SECURITISATION PROGRAMME NAME

US E OF S E C UR IT IS A T I O N TYPE OF SECURITISATION ISSUED

AUSTRALIAN FINANCE GROUP YES

AUSTRALIAN ADI

KINGFISHER

SECURITISATION PROGRAMME NAME

AFG

U S E O F SE CURI T I SAT I ON PRIME RMBS

TYPE OF SECURITISATION ISSUED

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

USE OF SE CURI T I SAT I ON PRIME RMBS

TYPE OF SECURITISATION ISSUED

PRIME RMBS

21%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

<1%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

62%

NUMBER OF SECURITISATIONS ISSUED

NUMBER OF SECURITISATIONS ISSUED*

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$20BN

TOTAL VOLUME ISSUED

A$6.5BN

TOTAL VOLUME ISSUED

A$2.4BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

78% DOMESTIC 22% OFFSHORE

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

48% DOMESTIC 52% OFFSHORE

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$4.6BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$1.1BN**

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$1.2BN

ormed in 1849, AMP Group is Australia and New Zealand’s leading independent wealthmanagement company, with an expanding international investmentmanagement business and a growing retail-banking business in Australia. AMP Bank is an Australian retail bank participating in residential mortgage lending, and retail and platform deposits. AMP Bank’s mission is to help customers with their goals for life, providing targeted retail-banking solutions focused on wealth creation. AMP Bank also provides financing to AMP’s financial-planning businesses. AMP Bank’s products and services enable the group to be relevant over a wider set of financial goals, earlier in the customer’s life cycle and with higher customer interaction. AMP Bank distributes its solutions by leveraging AMP Group’s advice network, through brokers and directly. ◆ please contact:

Gwenneth O’Shea Head of Securitisation +61 2 9257 5823 gwenneth_oshea@amp.com.au www.amp.com.au/securitisation 38 · Australian Securitisation Journal | Issue 16_2019

* Excluding internal securitisations. Reported values are based on initial amounts securitised at the time of each securitisation. ** As at 24 April 2019.

NZ Banking Group (ANZ) is one of the four major banking groups headquartered in Australia. ANZ provides a broad range of banking and financial products and services to retail, small business, corporate and institutional clients in Australia, New Zealand and the AsiaPacific region. The bank began its Australian operations in 1835, its New Zealand operations in 1840 and it has been active in Asia since the 1960s.

◆ please contact:

Scott Gifford Head of Debt Investor Relations +61 3 8655 5683 scott.gifford@anz.com Mostyn Kau Head of Group Funding +61 3 8655 3860 mostyn.kau@anz.com John Needham Head of Structured Funding +61 2 8037 0670 John.Needham@anz.com www.anz.com

ustralian Finance Group (AFG) is one of Australia’s leading companies when it comes to financial solutions. Founded in 1994, AFG has grown to become one of the largest mortgage-broking groups in Australia with a loan book of more than A$150 billion. Listed on the Australian Securities Exchange in 2015, AFG has in excess of 2,975 brokers across Australia, distributing more than 4,000 finance products supplied by AFG’s panel of more than 50 lenders. AFG leverages its tier-one technology platform proactively to manage its relationship with lenders, brokers and customers. AFG commenced offering its own securitisable home loans in 2007. These loans are funded by multiple warehouses and term transactions.

◆ please contact:

Ben Jenkins Chief Financial Officer +61 8 9420 7035 ben.jenkins@afgonline.com.au Toni Blundell Manager, Securitisation +61 404 817 417 toni.blundell@afgonline.com.au www.afgonline.com.au

AUSWIDE BANK AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

BEYOND BANK

YES

AUSTRALIAN ADI

YES

AUSTRALIAN ADI

YES

ABA TRUST

SECURITISATION PROGRAMME NAMES

REDS (RMBS), REDS EHP (ABS), IMPALA (ABS)

SECURITISATION PROGRAMME NAME

BARTON

USE OF S E C UR IT IS AT I O N TYPE OF SECURITISATION ISSUED

BANK OF QUEENSLAND U S E O F S ECURI T I SAT I ON

PRIME RMBS

TYPES OF SECURITISATION ISSUED

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

USE OF SE CURI T I SAT I ON PRIME RMBS, ABS

TYPE OF SECURITISATION ISSUED

PRIME RMBS

53%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

100%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$3.7BN

TOTAL VOLUME ISSUED

A$25.4BN

TOTAL VOLUME ISSUED

A$1.1BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

92% DOMESTIC 8% OFFSHORE

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$381M

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$3.9BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$500M

uswide Bank is an Australian regulated authorised deposittaking institution (ADI) with its head office in Bundaberg, Queensland. Auswide Bank is listed on the Australian Securities Exchange. It operates 21 branches from Townsville in north Queensland to Brisbane in the south east. Auswide Bank has extensive operations across Australia via thirdparty arrangements. Auswide Bank has Australian credit and financial-services licences issued by the Australian Securities and Investments Commission. As an ADI, it is supervised by the Australian Prudential Regulation Authority. The bank offers a range of personaland business-banking products and services issued directly or in partnership with leading service providers via branches, strategic relationships, and online and digital channels.

◆ please contact:

Dale Hancock Group Treasurer +61 7 4150 4025 dhancock@auswidebank.com.au www.auswidebank.com.au

ank of Queensland (BOQ) is a public company incorporated with limited liability under the laws of Australia. BOQ is domiciled in Australia, is listed on the Australian Securities Exchange and is regulated by the Australian Prudential Regulation Authority as an authorised deposittaking institution. As at 28 February 2019, the bank had total assets under management of A$53 billion.

◆ please contact:

Tim Ledingham Treasurer +61 7 3212 3342 tim.ledingham@boq.com.au James Shaw Head of Funding +61 7 3212 3835 james.shaw@boq.com.au www.boq.com.au

*Excluding internal securitisation

eyond Bank is one of the largest and most geographically diverse customer-owned banks in Australia. It has more than 245,000 customers and more than 40 branches across New South Wales, South Australia, Western Australia and the Australian Capital Territory. At the end of June 2018, its total assets exceeded A$5.8 billion. Profits are used to provide award-winning service and value across a wide range of banking and financial products. Beyond Bank has won a host of industry awards including Best Financial Institution in Corporate Social Responsibility at the Australian Retail Banking Awards in 2017 and 2018. It was also the first bank in Australia to achieve “B Corp” certification.

◆ please contact:

Tony MacGillivray Treasurer +61 8 8205 8853 tmacgillivray@beyondbank.com.au Kyle Schroeder Senior Securitisation Analyst +61 8 8205 8781 kschroeder@beyondbank.com.au www.beyondbank.com.au 39

ISSUER PROFILES

BLUESTONE GROUP

CITI AUSTRALIA

COLUMBUS CAPITAL

AUSTRALIAN ADI

YES

AUSTRALIAN ADI

SECURITISATION PROGRAMME NAMES

SAPPHIRE, EMERALD

SECURITISATION PROGRAMME NAMES

SAMT, CITI CARDS AUSTRALIA MASTER TRUST

SECURITISATION PROGRAMME NAME

TRITON

U S E OF S E C UR IT IS A TI O N TYPES OF SECURITISATION ISSUED

RMBS, REVERSE MORTGAGE

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

84%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$8.3BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

91% DOMESTIC 9% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$1.9BN

luestone Group (Bluestone) provides near-prime and specialist mortgage solutions to borrowers falling outside bank criteria. Established in Sydney in 2000, Bluestone has grown to become a significant nonbank lender, employing more than 250 staff and managing in excess of A$9.4 billion in loans. In March 2018, entities associated with Cerberus Capital Management (Cerberus) completed a transaction to purchase Bluestone’s Asia-Pacific operations. The executive-management team of the Asia-Pacific business continues to run operations with additional management positions added to support growth. The investment from Cerberus will see Bluestone broaden its product suite to have an increased focus on near-prime borrowers and, in the longer term, a move into other loan products.

◆ please contact:

Campbell Smyth Chief Executive Officer +61 2 8115 5167 campbell.smyth@bluestone.com.au www.bluestone.com.au 40 · Australian Securitisation Journal | Issue 16_2019

U S E O F SE CURI T I SAT I ON

USE OF SE CURI T I SAT I ON TYPE OF SECURITISATION ISSUED

PRIME RMBS 65%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

TOTAL VOLUME ISSUED

A$13.8BN

NUMBER OF SECURITISATIONS ISSUED

CURRENCIES ON ISSUE

AUD

TOTAL VOLUME ISSUED

A$4.9BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$3.7BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

73% DOMESTIC 27% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$2.6BN

TYPES OF SECURITISATION ISSUED

PRIME RMBS, CREDIT CARD ABS

NUMBER OF SECURITISATIONS ISSUED

s part of one of the world’s largest financial-services companies with a presence in nearly 100 countries, Citi Australia has been providing financial services to Australian consumers, corporations, institutions and governments for more than 30 years. Citi has been servicing and managing asset-backed portfolios since 1995. As of the end of December 2018, Citi had a A$7.9 billion portfolio of Australian mortgage assets and a A$4.8 billion portfolio of Australian creditcard assets, with around 28% of these assets securitised. There have been 15 issues from the SAMT programme, 18 from the legacy Compass Master Trust programme and one from the Citi Card Australia Master Trust programme. The SAMT structure is an active programme that has been in operation since 2003.

olumbus Capital was established in 2006 as a nonbank wholesale funder. In 2012, it acquired Origin Mortgage Management Services, its third-party wholesale lending business, from ANZ Banking Group. Columbus Capital has Australian credit and financial-services licences issued by the Australian Securities and Investments Commission. The company offers an extensive range of white-label home-loan products via strategic relationships and its online channel, focused solely on the prime mortgage space. Columbus Capital also offers third-party servicing capabilities covering home-loan, consumer-finance, lease and commercial ABS products.

◆ please contact:

Charles Finkelstein Country Treasurer +61 2 8225 6096 charles.finkelstein@citi.com William Mortimer Head of Securitised Products Australia & New Zealand +61 2 8225 2503 william.mortimer@citi.com www.citi.com/australia

◆ please contact:

Karl Sick Treasurer +61 2 9273 8132 karl.sick@colcap.com.au www.colcap.com.au

COMMONWEALTH CREDIT UNION BANK OF AUSTRALIA AUSTRALIA AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

YES

AUSTRALIAN ADI

MEDALLION

SECURITISATION PROGRAMME NAME

U SE OF S E C UR IT IS AT I O N TYPE OF SECURITISATION ISSUED

FIRSTMAC YES

AUSTRALIAN ADI

HARVEY

SECURITISATION PROGRAMME NAME

FIRSTMAC MORTGAGE FUNDING TRUST

U S E O F S ECURI T I SAT I ON PRIME RMBS

TYPE OF SECURITISATION ISSUED

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

NUMBER OF SECURITISATIONS ISSUED

PRIME RMBS

USE OF SE CURI T I SAT I ON TYPE OF SECURITISATION ISSUED

PRIME RMBS

51%

71%

NUMBER OF SECURITISATIONS ISSUED

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

A$65.3BN

TOTAL VOLUME ISSUED

A$8.8BN

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED TOTAL DOMESTIC VS OFFSHORE ISSUANCE

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

TOTAL VOLUME ISSUED

A$24.1BN

100% DOMESTIC

91% DOMESTIC 9% OFFSHORE

A$12.2BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

A$2.1BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$7.7BN

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

OUTSTANDING VOLUME OF SECURITISED ISSUES

ommonwealth Bank of Australia is Australia’s leading provider of integrated financial services. These include retail, premium, business and institutional banking, and funds-management, superannuation, insurance, investment and share-broking products and services. The bank’s approach to wholesale funding is to remain diversified across markets and to maintain a degree of flexibility around transaction timing. Wholesale funding is complemented by securitisation issues through the Medallion programme.

◆ please contact:

Ed Freilikh Executive Manager, Group Funding +61 2 9118 1337 edward.freilikh@cba.com.au www.commbank.com.au/ groupfunding

redit Union Australia (CUA) is Australia’s largest credit union, contributing to the financial wellbeing of almost 530,000 Australians through its banking, insurance and health-insurance services. CUA’s history dates back to 1946 and the formation of the Catholic Thrift and Loan Co-operative. Since then, CUA has grown its national footprint across four states following the amalgamation of more than 170 different credit unions. As a mutual, CUA was created by members for members. Its growth and success enables the reinvestment of profits back into the business to improve the member experience. CUA is an authorised deposittaking institution, authorised under the Banking Act and has an Australian financial-services license and an Australian credit license granted by the Australian Securities and Investments Commission. ◆ please contact:

Tim Moore Deputy Treasurer +61 7 3552 4096 tim.moore@cua.com.au www.cua.com.au

irstmac is a leading nonbank provider of prime home loans to the Australian market. It has funded in excess of 100,000 home loans from the inception of its lending programme in 2002. Firstmac provides consumers with an extensive selection of home-loan products which are available via thirdparty loan introducers and by way of Firstmac’s own online retail platform, www.loans.com.au. Firstmac is a regular RMBS issuer. It is currently among the top 10 issuers, with average annual issuance of A$2.4 billion over the past five years. Firstmac has also diversified its business to include motor-vehicle financing and a managed-investment-fund offering.

◆ please contact:

James Austin Chief Financial Officer +61 7 3017 8883 james.austin@firstmac.com.au Paul Eagar Director, Securitisation +61 2 8579 8403 paul.eagar@firstmac.com.au www.firstmac.com.au 41

ISSUER PROFILES

FLEXIGROUP

HERITAGE BANK

AUSTRALIAN ADI

SECURITISATION PROGRAMME NAMES

FLEXI ABS, Q CARD TRUST

SECURITISATION PROGRAMME NAME

US E OF S E C UR IT IS A TI O N TYPE OF SECURITISATION ISSUED

YES

AUSTRALIAN ADI

YES

HBS

SECURITISATION PROGRAMME NAME

ILLAWARRA

U S E O F SE CURI T I SAT I ON

USE OF SE CURI T I SAT I ON

ABS

TYPE OF SECURITISATION ISSUED

PRIME RMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

43%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

APPROX. 48%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$3.6BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

>75% DOMESTIC

NUMBER OF SECURITISATIONS ISSUED

OUTSTANDING VOLUME OF SECURITISED ISSUES

12 PUBLIC DEALS, 2 AUD WAREHOUSES, 1 AUD INTERNAL SECURITISATION, 1 AUD PRIVATE DEAL

A$1BN

TOTAL VOLUME ISSUED

APPROX. A$6.8BN EQUIV.

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

APPROX. 63% DOMESTIC 37% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

APPROX. A$800M EQUIV.

lexigroup provides a diverse range of finance solutions to consumers and businesses through a network of retail and business partners. This includes humm, its buy now, pay later product, credit cards, and consumer and business leasing. Flexigroup has been operating in Australia for more than 30 years. It has partnerships with 62,000 retailers and now serves 1.3 million customers across Australia, New Zealand and Ireland. Flexigroup has been an annual ABS issuer under its Australian Flexi ABS programme since 2011 and is a frequent issuer of Climate Bonds Initiativecertified green bonds. It is also a regular issuer under its New Zealand Q Card Trust – a revolving master trust which was established in 2014.

◆ please contact:

Bianca Spata Head of Group Funding +61 2 8905 2625 bianca.spata@flexigroup.com.au Ross Aucutt Chief Financial Officer +61 2 8905 2045 ross.aucutt@flexigroup.com.au www.flexigroup.com.au 42 · Australian Securitisation Journal | Issue 16_2019

IMB BANK

* By original issuance. Only domestic issues remain.

eritage Bank (Heritage) is Australia’s largest mutual bank with approximately A$9.75 billion in total consolidated assets at 31 December 2018. It is a public company, limited by shares and guarantee, which operates as a mutual organisation. The mutual business structure is an integral component of Heritage’s operating philosophy. Heritage is an authorised deposittaking institution regulated by the Australian Prudential Regulation Authority.

◆ please contact:

Rob Staskiewicz Structured Finance and Capital Manager staskiewicz.r@heritage.com.au Stuart Murray Term Debt and Liquidity Manager murray.s@heritage.com.au Heritage Treasury +61 7 4694 9500 www.heritage.com.au

TYPES OF SECURITISATION ISSUED

PRIME RMBS, SMALL-TICKET CMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

56%

NUMBER OF SECURITISATIONS ISSUED

7 RMBS, 3 CMBS

TOTAL VOLUME ISSUED

A$3.6BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$367M

stablished in 1880, IMB Bank (IMB) has been helping people achieve their financial goals for 139 years. IMB offers a full range of banking solutions including home and personal lending, savings and transaction accounts, term deposits, business banking, financial planning, and a wide range of insurance and travel products. IMB is regulated by the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. It is a member of the Customer Owned Banking Association. IMB has more than 195,000 members and total assets in excess of A$5.9 billion.

◆ please contact:

Mark Workman Treasurer +61 2 4298 0172 mark.workman@imb.com.au Ian Witheridge Senior Manager, Finance +61 2 4298 0256 ian.witheridge@imb.com.au www.imb.com.au

ING BANK (AUSTRALIA) LA TROBE FINANCIAL LATITUDE FINANCIAL SERVICES AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

YES

AUSTRALIAN ADI

IDOL

SECURITISATION PROGRAMME NAME

LA TROBE FINANCIAL CAPITAL MARKETS

USE OF S E C UR IT IS AT I O N TYPE OF SECURITISATION ISSUED

PRIME RMBS

U S E O F S ECURI T I SAT I ON TYPE OF SECURITISATION ISSUED

RMBS

16%

33%

NUMBER OF SECURITISATIONS ISSUED

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

TOTAL VOLUME ISSUED

A$10.2BN

NUMBER OF SECURITISATIONS ISSUED

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

99% DOMESTIC 1% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$2.4BN

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

NG – the trading name of ING Bank (Australia) – is part of the world’s leading direct bank and is wholly owned by ING Group. It offers products in retail mortgages, transactional banking, retail savings, credit cards, personal loans, specialised commercial property and retail superannuation. With more than A$40 billion in retail and business deposits, A$49 billion in retail mortgages and two million customers, ING is the fifth-largest home lender in Australia.

Peter Casey Deputy Treasurer +61 2 9018 5132 peter.casey@ing.com.au Samuel Rodgers Treasury Dealer +61 2 9028 4241 samuel.rodgers@ing.com.au www.ing.com.au

SECURITISATION PROGRAMME NAMES

LATITUDE AUSTRALIA CREDIT CARD MASTER TRUST, LATITUDE AUSTRALIA PERSONAL LOANS TRUST, LATITUDE NEW ZEALAND CREDIT CARD MASTER TRUST

USE OF SE CURI T I SAT I ON TYPE OF SECURITISATION ISSUED

ABS

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$3.7BN

TOTAL VOLUME ISSUED

A$2.9BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

57% DOMESTIC 43% OFFSHORE

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

A$2.6BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$2.7BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

a Trobe Financial is a leading nonbank financial institution offering specialist mortgage-lending products and wealth-management solutions. The company specialises in originating, underwriting and managing granular residential- and commercialmortgage assets. Since 1952, La Trobe Financial has grown its business to a A$7.5 billion balance sheet with more than 280 staff and offices in Melbourne, Sydney, Shanghai and Hong Kong. La Trobe Financial has helped more than 140,000 individuals obtain mortgage finance and has recently entered into a strategic partnership with Blackstone Group. ◆ please contact:

◆ please contact:

AUSTRALIAN ADI

Martin Barry Chief Treasurer and Strategy Officer +61 2 8046 1502 mbarry@latrobefinancial.com.au Chris Andrews Chief Investment Officer +61 3 8610 2811 candrews@latrobefinancial.com.au Richard Parry Head of Group Portfolio Management +61 3 8610 2847 rparry@latrobefinancial.com.au www.latrobefinancial.com

atitude Financial Services is a leading consumer-finance business in Australia and New Zealand, with 2.6 million open customer accounts and A$7.6 billion of receivables at 31 December 2018. The company offers products including credit cards, personal loans, motor loans, insurance, and interest-free promotional and retail offers. The business employs more than 1,600 staff across Australia and New Zealand, and services its customers through retailers, brokers, phone and the internet. The company offers a full suite of financing solutions for retail partners, managing credit applications, credit authorisation, billing, remittance and customer-service processing. Its products include Gem Visa, GO MasterCard and 28 Degrees Platinum MasterCard. ◆ please contact:

Eva Zileli Treasurer +61 417 327 643 eva.zileli@latitudefinancial.com Michael Donohue Assistant Treasurer +61 422 444 226 michael.donohue@latitudefinancial.com www.latitudefinancial.com.au 43

ISSUER PROFILES

LIBERTY FINANCIAL MACQUARIE GROUP AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

AUSTRALIAN ADI

YES

LIBERTY

SECURITISATION PROGRAMME NAMES

SMART, PUMA

US E OF S E C UR IT IS A T I O N TYPES OF SECURITISATION ISSUED

ABS, CMBS, RMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

75%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$25BN+

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

89% DOMESTIC 11% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

>A$8.2BN

iberty Financial (Liberty) is a leading diversified-finance company in Australia and New Zealand. Its businesses include residential and commercial mortgages, motor-vehicle finance, personal loans and investments. Liberty has raised more than A$25 billion in domestic and international capital markets across 56 transactions. Since 1997, Liberty has helped more than 350,000 customers “get financial”. Liberty is also Australia’s only investment-grade rated nonbank issuer (BBB-, outlook stable by S&P Global Ratings). It is also one of only a few lenders with an unblemished capital-markets record with no rating downgrades or charge-offs ever experienced by its securitisation programme.

◆ please contact:

Peter Riedel Chief Financial Officer +61 3 8635 8888 priedel@liberty.com.au www.liberty.com.au 44 · Australian Securitisation Journal | Issue 16_2019

acquarie Securitisation (manager of the PUMA RMBS and SMART ABS programmes) is a wholly owned subsidiary of Macquarie Bank, which is a regulated authorised deposit-taking institution and part of the Macquarie Group. Macquarie Group is a global diversified financial group providing clients with asset-management and finance, banking, advisory, and risk and capital solutions across debt, equity and commodities. Founded in 1969, Macquarie Group now employs more than 15,715 people in 30 markets around the globe. At 31 March 2019, the group had total assets under management of A$551 billion. Macquarie Group is listed in Australia and is regulated by the Australian Prudential Regulation Authority as the owner of Macquarie Bank.

SMART PROGRAMME USE OF SE CURI T I SAT I ON TYPE OF SECURITISATION ISSUED

ABS

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$28BN EQUIV.

CURRENCIES ON ISSUE

USD, AUD, EUR

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$3.4BN EQUIV.

PUMA PROGRAMME USE OF SE CURI T I SAT I ON TYPE OF SECURITISATION ISSUED

PRIME RMBS

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$55BN EQUIV.

CURRENCIES ON ISSUE

AUD

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$3.8BN EQUIV.

◆ please contact:

Robert Matiuk Associate Director, Group Treasury +61 2 8232 8574 robert.matiuk@macquarie.com www.macquarie.com

ME AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

MTF FINANCE YES

AUSTRALIAN ADI

SMHL

SECURITISATION PROGRAMME NAME

USE OF S E C UR IT IS ATI O N TYPE OF SECURITISATION RMBS ISSUED NUMBER OF 48 SECURITISATIONS ISSUED* TOTAL VOLUME ISSUED A$47.7BN TOTAL DOMESTIC VS A$30BN, US$10.4BN, OFFSHORE ISSUANCE €2.2BN OUTSTANDING VOLUME A$3.6BN OF SECURITISED ISSUES * Combined Members Equity Bank and historical mortgageorigination business.

E was created 25 years ago to provide low-cost home loans and banking products to members of industry superannuation funds and unions. ME’s new brand represents a modern, strong, innovative and secure bank in the digital era. ME is 100% owned by 26 industry super funds, which created the bank to help all Australians get ahead. ME recently opened its product offering to the broader Australian population. It is committed to providing straightforward products. ME has a philosophy of supporting, educating and empowering its customers to achieve their financial objectives.

◆ please contact:

John Caelli Treasurer +61 3 9708 3825 john.caelli@mebank.com.au Nathan Carr Manager, Funding +61 3 9708 3572 nathan.carr@mebank.com.au Sid Mamgain Manager, Structured Finance +61 3 9708 3747 sid.mamgain@mebank.com.au www.mebank.com.au

MYSTATE BANK NO

AUSTRALIAN ADI

YES

MTF

SECURITISATION PROGRAMME NAME

CONQUEST

U S E O F S ECURI T I SAT I ON

USE OF SE CURI T I SAT I ON

TYPE OF SECURITISATION ISSUED

ABS

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

NZ$740M

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

78% DOMESTIC 22% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

NZ$346M

TF Finance was formed in 1970 to enable selected New Zealand dealers to finance sales of motor vehicles to the public. MTF Finance is one of New Zealand’s largest motor-vehicle financiers, operating in all major centres from Kaitaia to Invercargill. MTF Finance originators come from a network of more than 150 dealers selling motor vehicles and motorcycles in conjunction with financial services, and 46 MTF Finance franchises that only sell financial services. Each originator participates in the profit of the business in proportion to the volume of origination written. This provides a compelling financial interest in the quality of business originated and ensures the ongoing success of MTF Finance.

◆ please contact:

Jason Hughes Securitisation Manager +64 3 474 6381 jhughes@mtf.co.nz Kyle Cameron Chief Financial Officer +64 3 474 6381 kcameron@mtf.co.nz www.mtf.co.nz

TYPE OF SECURITISATION ISSUED

PRIME RMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

74%

NUMBER OF SECURITISATIONS ISSUED

7 EXTERNAL RMBS

TOTAL VOLUME ISSUED

A$2.3BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$838M

yState Bank is a wholly owned subsidiary of MyState Limited – a national diversified financialservices group headquartered in Tasmania. With a customer-centric culture, MyState Bank offers banking, lending, financial and insurance services across Australia. MyState Bank’s loan portfolio is in excess of A$4.5 billion and is sourced directly via its branch network in Tasmania and central Queensland, as well as Australia-wide via its digital presence and broker network. MyState Bank also sources deposits via branch and digital channels. MyState Bank is an authorised deposit-taking institution and is regulated by the Australian Prudential Regulatory Authority.

◆ please contact:

Ryan Sharp Treasurer +61 3 6215 9554 ryan.sharp@mystate.com.au Susan Castley Structured Finance Analyst +61 3 6215 9552 susan.castley@mystate.com.au www.mystate.com.au 45

ISSUER PROFILES

NATIONAL AUSTRALIA BANK AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

PEOPLE’S CHOICE CREDIT UNION

YES

AUSTRALIAN ADI

NATIONAL RMBS

SECURITISATION PROGRAMME NAME

U S E OF S E C UR IT IS A T I O N

YES

AUSTRALIAN ADI

YES

LIGHT

SECURITISATION PROGRAMME NAME

PINNACLE

U S E O F SE CURI T I SAT I ON

TYPE OF SECURITISATION ISSUED

PRIME RMBS

TYPE OF SECURITISATION ISSUED

NUMBER OF SECURITISATIONS ISSUED

7 EXTERNAL RMBS

TOTAL VOLUME ISSUED

APPROX. A$19.6BN (EXCLUDES RETAINED DEALS)

OUTSTANDING VOLUME OF SECURITISED ISSUES TOTAL CROSS-BORDER TRANCHES ISSUED

P&N BANK

USE OF SE CURI T I SAT I ON PRIME RMBS

TYPE OF SECURITISATION ISSUED

PRIME RMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

58%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

10%

NUMBER OF SECURITISATIONS ISSUED

A$5.1BN

TOTAL VOLUME ISSUED

A$3.1BN

TOTAL VOLUME ISSUED

A$925M

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$1BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$300M

ational Australia Bank (NAB) is a major financial-services organisation in Australia and New Zealand. It has more than 30,000 people serving nine million customers at more than 900 locations in Australia, New Zealand and around the world. As Australia’s largest business bank, NAB works with small, medium and large businesses. The bank is there from the beginning to support customers through every stage of the business lifecycle. NAB funds some of the most important infrastructure in its communities – including schools, hospitals and roads. The bank does so in a way that is responsible, inclusive and innovative.

◆ please contact:

Paul Duns Director, Group Funding +61 3 8634 2700 paul.duns@nab.com.au Sarah Samson Head of Securitisation Origination +61 3 8641 2997 sarah.samson@nab.com.au www.nab.com.au 46 · Australian Securitisation Journal | Issue 16_2019

ustralian Central Credit Union, trading as People’s Choice Credit Union (People’s Choice), is one of Australia’s largest credit unions, with more than A$10.5 billion of total assets under management and advice. People’s Choice has more than 365,000 members serviced through locations in South Australia, the Northern Territory, Victoria, Western Australia and the Australian Capital Territory. People’s Choice is an authorised deposit-taking institution, is subject to prudential supervision under Australia’s Banking Act and is regulated by the Australian Prudential Regulation Authority.

◆ please contact:

Paul Farmer Manager, Treasury +61 8 8305 1898 pfarmer@peopleschoicecu.com.au Heather Gale Treasurer +61 8 8305 1829 hgale@peopleschoicecu.com.au www.peopleschoicecu.com.au

&N Bank (P&N) is Western Australia’s largest locally owned and managed bank. Operating under a customer-owned model, P&N’s primary focus is its 96,000-plus members. P&N aims to provide a genuine banking alternative for people who value competitive and convenient banking products, outstanding customer service and community spirit. With assets in excess of A$4 billion, P&N was Australia’s eighth-largest mutual bank at the end of August 2018. P&N is an authorised deposit-taking institution regulated to the same high standards as the major banks by the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, the Australian Transaction Reports and Analysis Centre, and the Australian Competition and Consumer Commission.

◆ please contact:

Phil Webster Treasurer +61 8 9219 7561 phil.webster@pnbank.com.au www.pnbank.com.au

REDZED LENDING SOLUTIONS AUSTRALIAN ADI SECURITISATION PROGRAMME NAME

AUSTRALIAN ADI

YES

REDZED

SECURITISATION PROGRAMME NAMES

RESIMAC PREMIER, RESIMAC BASTILLE, RESIMAC AVOCA, RESIMAC VERSAILLES

SECURITISATION PROGRAMME NAME

APOLLO

RMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

45%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$1.5BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

85% DOMESTIC 15% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$600M

SUNCORP GROUP

USE OF S E C UR IT IS ATI O N TYPE OF SECURITISATION ISSUED

RESIMAC

edZed Lending Solutions (RedZed) is one of Australia’s leading lenders dedicated to providing financial solutions to Australia’s under-serviced self-employed segment. The company specialises in originating, underwriting and managing residential, commercial and asset-finance loans with a focus on understanding the needs of the self-employed. Established in 2006, RedZed has helped thousands of Australian customers and originated in excess of A$2.7 billion in loans.

USE OF SE CURI T I SAT I ON

U S E O F S ECURI T I SAT I ON

TYPE OF SECURITISATION ISSUED

PRIME RMBS

100%

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

18%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$28BN

TOTAL VOLUME ISSUED

A$26.5BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

62% DOMESTIC 38% OFFSHORE

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$4.2BN

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$7BN

TYPES OF SECURITISATION ISSUED

RMBS, NIM BOND

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

esimac is a leading nonbank financial institution that commenced operations in 1985. The company offers a suite of prime and specialist lending products tailored to the residential markets in Australia and New Zealand. Resimac’s capital-markets activities are core to its enterprise strategy and it is one of the most prolific Australian nonbank issuers. It was the first Australian RMBS issuer in 1988 and since this time has issued more than A$28 billion equivalent in 45 deals including in Europe, the US and New Zealand. Resimac’s asset-servicing credentials are recognised by a “strong” servicer ranking from S&P Global Ratings.

◆ please contact:

Chris Wilson Chief Financial Officer +61 3 9605 3500 cwilson@redzed.com www.redzed.com

Andrew Marsden Treasury and Securitisation +61 2 9248 6507 andrew.marsden@resimac.com.au Debbie Long Treasury and Securitisation +61 2 9248 0383 debbie.long@resimac.com.au www.resimac.com.au

uncorp Group is a top-20 Australian Securities Exchangelisted company with A$99 billion in assets. The company has three operational business units: banking and wealth, insurance and Suncorp New Zealand. The group’s “One Suncorp” operating model places the customer at the centre of the business. The group has around 13,000 employees in Australasia and serves approximately 9.6 million customers through its trusted brands. Suncorp Bank is one of Australia’s largest regional banks with approximately a million individual, commercial (SME) and agribusiness banking customers, primarily in Queensland. ◆ please contact:

Simon Lewis Deputy Treasurer +61 7 3362 4037 simon.lewis@suncorp.com.au Maddalena Gowing Manager, Securitisation and Covered Bonds +61 7 3362 4038 maddalena.gowing@suncorp.com.au Christian Graham Securitisation and Covered Bonds Specialist +61 7 3362 4032 christian.graham@suncorp.com.au www.suncorp.com.au 47

ISSUER PROFILES

THINKTANK

WESTPAC BANKING CORPORATION

AUSTRALIAN ADI

SECURITISATION PROGRAMME NAME

THINK TANK

U S E OF S E C UR IT IS A T I O N TYPE OF SECURITISATION ISSUED

CMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION

68%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

A$1BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

A$739M

hinktank Commercial Property Finance (Thinktank) is an independent nonbank financial institution specialising in the provision of commercial-property mortgage finance up to A$3 million in the Australian SME sector. Commencing operations in 2006, Thinktank is a programmatic issuer supported by a national distribution network and offices in Sydney, Melbourne and Brisbane. Thinktank’s asset quality and performance is notable for conservative loan-to-value ratios, low arrears and a negligible loss history. Under the continued guidance of the founders, growth in the loan portfolio has been measured and is strongly supported by long-term domestic and offshore institutional stakeholders.

AUSTRALIAN ADI

YES

estpac Banking Corporation (Westpac) is Australia’s second-largest banking organisation and one of the largest in New Zealand. Through its unique portfolio of brands, Westpac provides a broad range of banking and financial services in these markets including retail, business and institutional banking, and wealthmanagement services. At 31 March 2019, Westpac had total assets of A$891 billion. Westpac’s ordinary shares and certain other securities are quoted on the Australian Securities Exchange and, at 31 March 2019, the bank’s market capitalisation was A$89 billion.

RMBS PROGRAMME SECURITISATION PROGRAMME NAMES

WST, CRUSADE RMBS

TYPE OF SECURITISATION ISSUED

PRIME RMBS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION1

3.7%

NUMBER OF SECURITISATIONS ISSUED

TOTAL VOLUME ISSUED

APPROX. A$81.6BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE2

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

APPROX. A$7.5BN

1 Includes RMBS and ABS. As at 31 March 2019. Residual maturity basis. 2 Based on issues currently outstanding.

ABS PROGRAMME SECURITISATION PROGRAMME NAME

CRUSADE ABS

TYPE OF SECURITISATION ISSUED

ABS

PROPORTION OF OUTSTANDING WHOLESALE FUNDING SOURCED VIA SECURITISATION1

3.7%

NUMBER OF SECURITISATIONS ISSUED TOTAL VOLUME ISSUED2

10 APPROX. A$10.3BN

TOTAL DOMESTIC VS OFFSHORE ISSUANCE3

100% DOMESTIC

OUTSTANDING VOLUME OF SECURITISED ISSUES

APPROX. A$3.6BN

1 Includes RMBS and ABS. As at 31 March 2019. Residual maturity basis. 2 100% Crusade ABS. 3 Based on issues currently outstanding.

◆ please contact:

Cullen Hughes Chief Financial Officer and Treasurer +61 2 8669 5518 chughes@thinktank.net.au Jonathan Street Chief Executive Officer +61 2 8669 5505 jstreet@thinktank.net.au www.thinktank.net.au 48 · Australian Securitisation Journal | Issue 16_2019

◆ please contact:

Guy Volpicella Head of Structured Funding and Capital +61 2 8254 9261 gvolpicella@westpac.com.au www.westpac.com.au

SAVE THE DATE

AUSTRALIAN SECURITISATION 2019 The annual conference of the Australian Securitisation Forum 18-19 November 2019, the Hilton, Sydney

If you would like to know more about the event, including sponsorship opportunities, please contact:

Jeremy Masters jmasters@kanganews.com +61 2 8256 5577