The AOFM bought A$189.14 million across the transaction structure, including the entire A$70 million A2 note. It was a price taker in the other five tranches it supported and states it “has not crowded out other investors”.

James Austin, chief financial officer at Firstmac in Brisbane, says without the AOFM’s supporting bid the transaction would undoubtedly have been smaller and securing government investment added to confidence around the new issue.

The AOFM’s presence as an RMBS buyer – for the first time since its post-financial-crisis investment programme – evolved quickly. The Australian federal government announced the AOFM programme on 19 March and new legislation governing it came into effect on 24 March.

“The AOFM indicated that its first order of business would be to assist deals that were already under way but struggling,” Austin explains. “Ours had been in the market for six weeks and we had been in discussions with a number of cornerstone investors for some time. We have strong relationships with our investors and this allowed us to resume the deal process – assisted by the confidence the AOFM brought.”

Third-party investors bought more than four-fifths of total deal volume and Austin reveals there was participation from accounts in Australia, the UK and Asia. He adds that the Australian part of the book exclusively comprised real-money investors, with no balance-sheet participation at all.

KangaNews understands the AOFM approached the Firstmac transaction as one that already had significant interest and, therefore, needed gaps plugged rather than cornerstone support.

Based on this, subsequent AOFM investments in securitisation may account for greater proportions of total deal structures. The purpose of the investment programme is to have a multiplier effect on the private-sector bid but the AOFM appears to be working under the principle that it may have to do more of the heavy lifting.

By tightening the margin on the A2 notes, the AOFM facilitated extra margin elsewhere in the trade, thus supporting Firstmac and providing other investors with a buffer in case of growing hardship in the underlying mortgage book.

Execution came despite uncertainty about the impact of the COVID-19 economic fallout on structured-finance trusts. Unemployment has risen sharply due to the shutdown of many businesses, and market participants are scrambling to calculate the impact of financial stress – and, potentially, mortgage holidays – on special-purpose vehicle (SPV) cash flows.

Austin says a team of eight within the Firstmac treasury department has been working on the book data and modelling SPV liquidity outcomes and the firm hopes to have a clearer picture of its book by early April. The consequences have been manageable to date.

“The impact has been quick but not huge so far: we had A$65 million of loans in hardship – all the result of COVID-19 – by 25 March, which is not, of itself, concerning in a book of A$13 billion,” Austin reveals. “We are aware the scale of the problem will grow, especially as we head towards a stage-three lockdown and potentially beyond. Our job is to keep modelling and analysing the data, and making the correct management decisions on a timely basis.”

Austin also highlights the fact that a loan in hardship may still have payments being made on it. More than half of Firstmac’s hardship book is still making 50 per cent mortgage payments.

KangaNews is your source for the latest on the COVID-19 pandemic’s impact on Australasian debt capital markets. For complete coverage, click here.