Avanti consolidates its presence

New Zealand’s securitisation market is ready for expansion as more investors come into the space and regulatory-driven evolution looms. Paul Jamieson, group treasurer at Avanti Finance (Avanti) in Auckland, says the company is in position to exploit the opportunity to fund and deliver a bigger lending book.

Avanti priced its second residential mortgage-backed securities (RMBS) deal in June this year having completed its inaugural transaction in 2018. How would you compare and contrast the two, especially with regard to investor response and distribution?

The 2019 transaction was overall a little easier than the inaugural transaction as most investors already had a good understanding of our business. We finished with a very pleasing outcome on the deal. The investor responses were positive, the deal was oversubscribed and we gained a number of new accounts in the 2019 transaction. We were able to have constructive conversations with investors on scaling while being conscious of those who invested in the 2018 deal.

Avanti is involved in personal and auto finance but both its public capital-markets transactions to date have been in RMBS format. How far away is the company from bringing a nonmortgage securitisation deal to market? Would New Zealand investors be equally receptive to a nonmortgage asset-backed securities (ABS) offering from Avanti?

We are thinking about a motor-vehicle ABS transaction at the moment. Earlier this year we bought Branded Financial Services, which operated in New Zealand and Australia as a captive motor-vehicle lender. This purchase has effectively doubled our motor-vehicle lending book and broadened our participation in this segment. So we are considering when we might want to come to market with a motor-vehicle ABS deal.

New Zealand ABS has generally been popular with New Zealand and Australian investors, and other issuers have led the way in that space in the last few years. We believe an Avanti ABS transaction would be well received and would build on our solid reputation as an originator and servicer of consumer debt across ABS and RMBS.

What is Avanti’s expected future funding strategy? How often do you expect to be active in public markets and at what sort of scale?

We want to be an annual issuer of RMBS and also a regular issuer of ABS. We are currently undertaking detailed analysis of our motor-book growth and performance profile in order to come to market in a considered fashion. We don’t want to launch one transaction and then be absent.

Our mortgage- and auto-lending books are growing strongly, to the extent that they facilitate regular issuance. We expect to come to market next year with a third RMBS structure and also to bring our first ABS deal, most likely early in 2020.

Australian nonbanks have undertaken a lot of global investor-relations work. New Zealand’s domestic securitisation market is relatively less mature than the Australian equivalent, so does engaging with international investors play a role in your funding strategy?

It will do eventually, but the issue we have currently is around size. Most offshore investors require larger-volume deals to get involved in transactions. As we grow as a business, we will progressively take further steps in our investor strategy offshore.

We have investors in Australia and we also get occasional interest from investors in Asia. So far, we have not spent a lot of time courting these investors – the interest we come across has been driven more by reverse enquiry.

How well understood is the nonconforming lending sector in New Zealand capital markets? Australian nonbanks often feel they have to do a lot of mythbusting with investors, battling comparisons of their loan books with things like US subprime.

It is similar in New Zealand. We have to spend more time explaining to investors and rating agencies how this segment of the market works in New Zealand. But investors and rating agencies usually get comfortable once we have explained and worked through the yield generated, the arrears profile, customer servicing, collection processes, and how those areas of our business are managed and resourced.

It has to be said, though, that educating parties and spending time explaining Avanti’s business is all part of the process of building the relationships necessary to issue in capital markets.