Tuesday, December 15, 2009

Westpac RMBS Could Reopen Australian Market

Original posted on the Wall Street Journal by Enda Curran:

Westpac Banking Corp. launched a one billion Australian dollar (US$911.9 million) offer of residential mortgage-backed securities, a move that could herald the reopening of Australia's once-vibrant RMBS market.

Although smaller lenders have recently sold a string of home-loan-backed bonds without the need for government support, Westpac's offer is the first by a major bank since May 2007, just prior to the outbreak of the global credit crunch.

Ratings agency Moody's Investors Service said Westpac's offer is unusual compared with others because only a fraction of the pool of mortgages is insured. It said the deal has a more complex structure, which is a mild negative, offset by greater credit support provided by note subordination.

Asset-backed borrowing had accounted for around a third of Australia's debt market in 2007, with RMBS issuance making up more than half of this amount, but since then issuance has slowed to a trickle. Smaller banks have raised around A$3 billion so far this year through RMBS sales, with no assistance from the government.

The offer from Westpac, the country's second-largest bank by market capitalization, is made up of a pool of home loans that are around three years old with a weighted average loan-to-value ratio of 58.28%.

The issue is divided between A$920 million of Class A notes carrying a preliminary triple-A rating, A$55.0 million of double-A-rated Class B notes and A$25.0 million of Class C bonds, which are not rated. Yield guidance on the Class A notes is 1.30 percentage point over swap, market participants said.

Pricing is expected by the end of the week.

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