(Correct the names of ratings agencies in the last four paragraphs. DBRS and Fitch rated all six tranches, while S&P only rated the first tranche. Moody’s did not rate any part of the offer)
SYDNEY, March 31 (Reuters) - Latitude Finance Australia, a non-bank lender, sold Australia’s first securitisation of credit card debt with a A$1 billion issue, opening the way for banks seeking new funding sources.
The debut offer will also bring diversity to a asset-backed securitisation market dominated backed by home loans.
“All we have in Australia, really, is mortgage-backed securities, so to diversify out of housing is very good,” said Raymond Lee, a portfolio manager for Kapstream Capital which has A$10 billion under management.
Worth around A$125 billion, Australia’s structured finance market is among the five largest in the world, but unlike Europe and the United States, it had no credit card-backed securities until this week.
Strong demand resulted in Latitude’s offer being upsized from an initial A$750 million and it paid tighter margins than initially anticipated. Even then, investors were heavily scaled back at the clearing price.
A total of 36 investors participated, with international accounts taking 78 percent including 38 percent from Europe and 33 percent from Asia, said Lionel Koe, a securitisation director at National Australia Bank (NAB).
NAB was one of the lead arrangers with Bank of America Merrill Lynch and Deutsche Bank.
By investor type, fund managers bought around three quarters of the issue with bank balance sheets taking the remainder, Koe said.
Kapstream’s Lee said he bought a piece of the six-tranche offer because he liked the margin and its short-dated maturity. It was Kasptream’s first purchase of this type of asset.
Credit card securitisations, which are extremely popular in the United States, usually pay less attractive margins to investors than that of mortgage-backed issues (MBS). But Kapstream’s Lee estimates that Latitude was more generous, offering spreads in line with residential mortgage-backed securities or above.
The issue, called Latitude Series 2017-1 notes, had a three-year soft-bullet tenor, a feature that gives more certainty to investors to being paid back in full by 2020.
The first tranche of A$685.9 million, rated AAA by S&P, Fitch and DBRS, paid 125 basis points over the one-month bank bill swap rate. Initial marketing was 130 to 140 basis points.
The second tranche of A$125.65 million, rated AAA by Fitch and DBRS, paid 185 basis points. Initial indications suggested around 200 basis points.
The third tranche of A$57.6 million, rated AA by Fitch and DBRS, paid 240 basis points, while the fourth tranche of A$52.35 million, rated A by Fitch and DBRS, paid 300 basis points.
The fifth piece of A$41.86 million, rated BBB by Fitch and DBRS, paid 375 basis points. The final tranche of A$36.64 million was rated BB by Fitch and DBRS, paid 525 basis points and was the most popular of the issue, showing an oversubscription level greater than six times. (Reporting by Cecile Lefort; Editing by Eric Meijer)