Positive signs in the secondary and mezzanine sectors

Two of the best news stories for Australian securitisation in recent years have been the scale of demand for mezzanine notes and improving secondary trading conditions. Both factors remain positive.

DAVISON There has been a positive story about secondary liquidity in Australian securitisation that started a couple of years ago and has been maintained. Does it mean investors have more faith in the asset class today?

BARRY The Truss-Kwarteng case study is probably one of the more important market developments of the last 25 years. Investors and banks take great comfort in the liquidity Australian RMBS [residential mortgage-backed securities] product demonstrated during this period – it put the sector
in a good light globally.

BROWN To expand further, more banks now have traders in the region and their market- making is helping create deeper pools of liquidity.

J AUSTIN The ASF [Australian Securitisation Forum] has been working with the RBA [Reserve Bank of Australia] to get regular reporting of secondary market RMBS up and running. The RBA’s position historically has been that it is an illiquid market with infrequent trading and it was of the opinion that there was more value in reporting liquidity of corporate bonds.

MARSDEN Offshore investors require secondary support – they trade, and they will have triggers to rebalance at times. I also think it is incumbent upon us as issuers that, when we are mandating banks, we implement rigour about expectations on secondary market support.

AZZOPARDI A lot of elements are working in our favour right now – relative value and open mezzanine tranches are two examples. In our recent deal, there was an uptick in new offshore investment and we know the securities have traded since pricing. Every single new investor, if they have experience in the market, is a benefit for all of us.

DAVISON Mezzanine notes are reliably oversubscribed at present and issuers are taking different approaches to allocations. Is there a right way to deal with this segment of the market?

RIEDEL Consistency is key. Everyone will have a different approach but consistency and being as transparent as we can be is at the heart. Each issuer has a different framework, though – it is not one-size fits all.

BROWN Communication on deals has been slightly different from transaction to transaction in recent years. Consistency of messaging and being as upfront as one can throughout the process is crucial. Deals evolve, and they rarely end up looking like they do at the start. It’s important to make sure there is clear and open discussion.

TOGNON As issuers, we all engage with the public market as we seek access to multiple investors, get their feedback and seek a fair market clearing price. Having this consistency is important because the market is volatile and there will be a point where mezzanine is not as well bid as it is today. Consistency of being in market during the good times and not so good times is valued by investors.