Metro Finance opens the throttle

Metro Finance expects to add further warehouse facilities over the next 12 months as it continues to grow. The issuer says it has received strong support from key European and Japanese investors for its past Australian dollar deals and aims to foster their involvement with a potential second deal before the end of 2022.

Metro Finance has become a consistent issuer of asset-backed securities (ABS) since its first transaction in 2018, growing its programme alongside its lending business.

George Pappas, Sydney-based treasurer at Metro, says the company’s lending business has continued to grow despite the geopolitical turmoil, inflation, cost-of-living pressure and higher rates.

“We had a record month of settlements in June,” he says. “The commercial space is our main business, although we have also seen an increase in our novated lease originations. We have also entered the consumer auto loan market. We have three warehouses and will explore adding at least one more over the next 12 months to support growth.”

Pappas tells KangaNews that Metro’s lending book has experienced record low defaults and arrears despite the increasing rates environment. “Performance is good and volume is strong,” he explains. “On the commercial side, people need vehicles and equipment for their businesses – they cannot operate without them. They make sure to service their loans as a result.”

On the funding side, the senior tranche of Metro’s most recent transaction priced at 95 basis points over one-month BBSW, compared with 75 basis points on the class A note of its July 2021 deal. Metro targeted early 2022 for its deal timing: ABS priced in Australia in mid-year have had to offer more than 150 basis points over BBSW in their senior tranches to find sufficient investor interest.

Widening spreads have come about over the year for several reasons, not just global geopolitical and economic instability. Locally, the end of the term funding facility and banks’ consequent return to the funding market have increased the variety of paper available to investors.

Pappas notes some investors have been sitting out or putting capital in asset classes perceived to be less risky, while bank balance sheets have been stepping in to support the senior tranches of recent term transactions. On the other hand, he argues the widening experienced in securitisation spreads this year is likely overdone based on the low default and arrears numbers recorded across the market.

“We had a record month of settlements in June. The commercial space is our main business, although we have also seen an increase in our novated lease originations. We have also entered the consumer auto loan market. We have three warehouses and will explore adding at least one more over the next 12 months to support growth.”

George Pappas Metro Finance
INTERNATIONAL SUPPORT

Metro typically targets offshore accounts to diversify its investor base alongside a strong local bid. The issuer will likely tap the market again in 2022, following the northern hemisphere summer, though Pappas says Metro aims to be opportunistic. Spreads on Australian dollar securitisations have plateaued and there has been a general lack of ABS executed in primary markets in 2022, he notes.

“There will likely be an opportunity for a further ABS transaction to come to market and perhaps execute tighter than some of the RMBS [residential mortgage-backed securities] we have seen this year. The Europeans may have some cash to deploy, so there might be some demand there, as well as from Japan. There has not been much in the way of auto ABS transactions so far this year, so the next two months might be an opportune time to issue.”

Investors are typically demanding shorter tenor and Metro will consider offering a short senior note with a weighted average life of about six months in its next deal. “ABS is typically shorter than RMBS, which is an advantage for us: we can assume we will find demand for our next deal simply because of the overall shorter tenor.”