“When we acquired the Macquarie portfolio we accredited a large number of new dealer partners, and with that naturally comes new retail volume,” McFadyen says. “Simply put, our transaction size increased because we have been originating more new business. We have just had a really good March 2024 and continue to see volume increase.”

Going forward, McFadyen expects Allied Credit will target two transactions per year of at least A$750 million. A second 2024 deal would be the second time the issuer has come to market twice in a calendar year – it privately placed an asset-backed securities (ABS) deal in April last year and completed a public transaction in September – but, given the size of the latest deal, it would also represent a significant step up in total annual issuance (see chart).

Source: KangaNews 9 April 2024

The large size of the deal was driven more by demand than the issuer’s near-term funding need. “We had no requirement to issue A$1 billion due to warehouse limits – we have plenty of support from our funding partners and there was no pressure to increase the transaction size,” McFadyen says.

Pricing also reflected a positive demand environment. The senior notes printed at 130 basis points over BBSW – in line with guidance – but McFadyen suggests this was close to the best-case scenario. “To print at this level was our target. We were really hopeful of not pricing wider – clearly if we had priced tighter than this we would have been ecstatic, but I think 130 was a fair price,” she comments.

In this case, the issuer chose to preplace the mezzanine notes with its warehouse providers, from which support was sufficient to handle the deal upsize. This is not an approach Allied Credit will necessarily take in the future, however.

“We thought long and hard about whether to offer the mezzanine notes,” McFadyen explains. “The demand was extremely high from our warehouse providers, so we knew straight away we would be well covered. To bring a deal to market and have investors spend time on it then get a disappointing allocation would have been unfair; it was better to say there was nothing available from the beginning. This does not mean to say we will do the same going forward.”

As part of the volume step-up, Allied Credit also welcomed several new accounts to its programme. McFadyen draws particular attention to the emergence of additional offshore investors, which she says had shown interest in the past but could not commit until Allied Credit finished getting European Securities and Markets Authority (ESMA) reporting in place. Having two triple-A ratings on the senior notes also added confidence.

“This is effectively the first deal of the new programme and it is just the starting point for us,” McFadyen notes. “There are more investors out there that will be able to participate now that we have ESMA reporting and a dual rating in place. We might not have got to them this time, but definitely for future transactions.”

The old Macquarie Bank SMART programme frequently incorporated foreign currency tranches. McFadyen says there are no near-term plans for Allied Credit to do so but it is not inconceivable. “It depends how big we get,” she comments. “Never say never – everything is on the cards and we are taking each deal as it comes.”