Avanti ready for action

New Zealand’s securitisation market could be set to proliferate as regulatory moves to kick-start a bank market progress. Mark Mountcastle, chief executive at Avanti Finance (Avanti) in Auckland, says the environment is also beneficial for nonbank lenders.

What led Avanti to bring its debut New Zealand securitisation deal in 2018?

We have been operating in this market for 28 years and our competitors tend to operate in market verticals rather than across the market as we do. We saw our breadth as an opportunity to define the role of a nonbank in New Zealand.

The long-term mortgage product added to our opportunity to do this by creating a more relevant offering across our introducer base. Residential mortgage-backed securities (RMBS) issuance closed the circle for us in proving the concept of a viable nonbank market in New Zealand based on an effective service proposition. The deal portfolio was a mix of prime and nonprime mortgages but the outcome is we have been able to produce an investable security.

Australian major banks have been reviewing their lending appetite, creating an opportunity for nonbanks. Is the story similar in New Zealand?

The factors present in the Australian market are reflected to a degree in New Zealand. There is some evidence of a change in lender appetite and it is a reasonably good time to be a nonbank lender in New Zealand.

There seems to be a growing gap between borrowers that fit the bank model and those that don’t on a global level. New Zealand is no different, but the relative position of the participants is somewhat less defined. There is certainly opportunity here.

We see the New Zealand nonbank sector developing, but this is also due to customers seeking a more personal engagement with a lender. Our goal is to take advantage of this trend by offering a broad range of solutions to clients seeking an alternative to banks.

We lend in the prime and nonconforming sectors. We are not a bank so we are not competing head-to-head with banks at a commoditised product level. Any credit aspect that would not fit bank lending criteria is an area where we can provide a solution.

But this is not necessarily a credit-quality issue. It can be structural or it could be any one of a raft of factors. As banks revise their lending appetite, more of this opportunity opens up.

How did you develop investor comfort around the quality of the underlying collateral in your RMBS deal?

We believe investors were keen to see this transaction. The fact we were a New Zealand-based servicer was a source of confidence given investors’ familiarity with the local market. There was a perception on the buy side that a local operator would be better placed to understand the risks associated with the market. This gave investors a lot of confidence, along with our 28-year history. While the long-term mortgage product is new to Avanti, our operation in the mortgage market is not.

Do you have specific policies around loan-to-value ratio (LVR) or interest-only loans?

Our approach to LVR was already fairly conservative: most of our lending is less than 80 per cent LVR. The Reserve Bank of New Zealand has provided a quantitative cap around high-LVR lending for owner-occupiers and investors. However, these LVR criteria didn’t change our behaviour materially. There was some knock-on effect through our facilities to the extent that we rely on funding from banks.

Avanti is also involved in personal and auto finance. Is nonmortgage securitisation on the radar?

This is something we were asked regularly by investors when we brought the RMBS deal to market. It is something we are considering seriously in our medium-term plans, and we will look to engage with investors to the extent we think we have a viable offering in an asset-backed product.

Is Avanti likely to be a regular public-market issuer? What is the future funding strategy?

Regular issuance is certainly the plan. Our strategy to date has been around delivering good-quality outcomes for customers and introducers that are using Avanti for their nonbank offering. For us, it is about defining a bit more closely what the nonbank offering means in the New Zealand context and being the go-to brand for that offering.

We are working hard on this through product development, delivery and communication. At the end of the day, our success is built on service delivery to customers. The capacity we have to deliver is built on repeat issuance of reliable loans to investors, so securitisation is a big part of our plan.