High society – Australian securitisation welcomes another debutant
SocietyOne’s debut public asset-backed securities prioritised transaction quality and execution certainty over volume, according to the borrower. The nonbank lender joins a growing cohort of personal-loan originators in the term securitisation market, and says it plans to increase volume in subsequent deals.
National Australia Bank (NAB) led the A$182 million (US$134 million) transaction which priced on 8 September. The nonbank’s inaugural securitisation continues an expansion of the Australian personal loans and consumer receivables asset-backed securities (ABS) market.
In the same week as the SocietyOne deal, Prospa executed the market’s first-ever public transaction backed by unsecured small business loans and lines of credit. NAB also led that deal.
The two debuts followed a busy couple of months for Australian securitisation. According to KangaNews data, A$17.4 billion of supply has launched since the beginning of July. Bank transactions are also adding to the flow of nonbank deals.
*Includes credit-card and personal-loan programmes.
Source: KangaNews 13 September 2021
John Cummins, chief investment officer at SocietyOne in Sydney, says the timing of its deal was based on market strength and a desire to relieve some warehouse space before a refinancing requirement at the end of this year.
“We considered a transaction in Q1 but then with strong origination volume we upsized our warehouse in May,” Cummins explains. “We were then considering a transaction in June but the COVID-19 outbreak in Sydney led us to pause. With market conditions strong and our warehouse refinancing coming up, we decided now was the right time.”
Stephen McCabe, director, securitisation at NAB in Sydney, says both transactions were managed so investors had the required time for necessary credit work. Both deals also had a long lead time, with SocietyOne planning its ABS for more than six months and Prospa even longer.
McCabe adds that the remainder of September and October is likely to be slightly lighter in securitisation deal flow before another likely ramp-up of supply in November.
Cummins tells KangaNews transaction quality was a core focus especially given the growing number of personal-loan securitisation programmes in the public market. “Our intention is to come to the market annually going forward so we wanted this deal to set a compelling marker. We made sure the collateral in the pool was strong and included no loans more than five days in arrears.”
He adds SocietyOne wanted to put the best collateral in front of Moody’s Investors Service. Cummins says this possibly contributed to the rating agency assigning a Aaa rating to the transaction’s senior tranche. The company had been preparing for the possibility of bringing a transaction with a maximum rating of Aa2 — a path followed by some other debut borrowers.
This focus on asset quality meant some trade-off in volume for Society One, though Cummins says future transactions will likely be larger.
Despite the transaction coming during a frenetic period of securitisation issuance, demand was strong for SocietyOne’s deal. McCabe says market appetite for personal-loan ABS has been buoyant as more new entrants have come to market, with the asset class viewed as a good diversification from residential mortgage-backed securities.
Cummins says with a smaller volume Society One was conscious of not casting its net too wide and consequently having to significantly scale bids. Instead, it accepted an order from one investor for its mezzanine and junior tranches before launching its senior tranche, in which it received bids from a handful of investors.
By limiting the number of investors in the deal, SocietyOne was able to draw a straight line through bids, scaling them equally instead of on a preferential basis, he adds. Participation in the transaction was mostly domestic.
Despite the planned execution approach, SocietyOne met several investors it was aware were unlikely to participate in its debut deal, to cultivate a wider base for subsequent transactions.
nonbank Yearbook 2020
KangaNews's fourth annual guide to the business and funding trends in Australia's nonbank financial-institution sector.