Diversity pays off for Latitude

Eva Zileli, treasurer at Latitude Finance Australia (Latitude) in Melbourne, shares a perspective on how the issuer is benefiting from a securitisation market that is increasingly welcoming of diverse asset pools and deal structures – as well as Latitude’s growing product offering.

The Australian securitisation market finally seems to be more welcoming of wider collateral types and deal structures. How might this help Latitude’s growth plans?

I met with many domestic investors when roadshowing our most recent public transaction. These investors are willing to invest in our product so of course they are more open to diversifying away from residential mortgage-backed securities (RMBS). The reception was very positive. Their feedback was that there is a lot of RMBS flow in the market and thus a desire for diversity.

Investors need to be comfortable with the underlying receivables. But if you have a good story and good history – as we have – the reception should be positive.

Latitude was Australia’s first master-trust securitiser. With several transactions now in the book, what additional functionality does the master trust offer that you have not used yet?

The master trust enables programmatic issuance such that once investors are comfortable with the structure – which they get across in the first transaction – they don’t necessarily need to go into the same level of detail in analysing each new standalone deal.

When we met investors for our latest transaction, the focus was not typically on the structure, particularly for existing investors. It was more about our business, market dynamics and underlying receivables.

The master trust also allows us to come to market more quickly than we would be able to if we had to set up a standalone structure each time.

We would now like to explore a variety of issuance using the master trust, for instance mixed-maturity transactions and including a mix of amortising and bullet notes. Another angle we could explore is offering a wider range of currencies – especially as it is easier to swap when you are issuing soft bullets, which the master trust facilitates.

We wanted to start with a relatively straightforward approach. But now we have established our presence it is time to look at a wider range of options. There is lots of potential that we hope to explore in the next year or two.

Latitude recently launched a buy-now, pay-later (BNPL) product. What are the scale ambitions in this business and how soon might its asset book become relevant to securitisation?

For us, launching into the digital-payments space with LatitudePay is an extension of our existing product set – for instance our no-interest instalments business. The key difference is the shorter timeframe and lower dollar value of the items.

Launching LatitudePay is largely a customer-acquisition strategy and it’s about remaining relevant to a broad customer base as well as supporting revenue growth. It is a payments solution that appeals to a different buyer base from what we currently have, particularly millennials and the younger generation.

The idea is to engage with consumers as they embark on setting up a home or becoming more independent through financing purchases. As we become more familiar with each other, these customers can transition to our other products over time.

This is where we see the value-add with LatitudePay. The assets are relatively low value and our scale ambition is limited. We do not see it overtaking our traditional products of sales finance and credit cards.

We will be speaking with rating agencies about BNPL. The biggest issue with a BNPL securitisation right now is lack of historical performance data.

For the time being, we can fund in our warehouses and on balance sheet. This will give us the opportunity to build up historical data and, over time, we could look to include LatitudePay in our master trust. We wouldn’t do this unless we had already engaged with the rating agencies and were clear with investors on prospective trades.

What do securitisation investors ask about Latitude Finance’s ownership – and what can you tell them?

Investors do ask about our ownership structure, and whether it is likely to change. The answer is that we are owned by private equity, and as such it is likely that at some point the owners will want to exit. The decision and its timing is a matter for them.