Strong Public Capital Markets Showing Signs of Additional Benefits for Non- Bank Originators

2021 has seen a step change in spreads on public asset-backed deals from where the market finished in 2020. The three transactions to price so far in 2021 have all shown material improvement in execution across the capital stack.

Columbus’ Triton 2021-1, Resimac’s Premier Series 2021-1 and the Eclipx FP Turbo Series 2021-1 transactions all executed strongly with spreads in the most senior AAA classes through the mezzanine layer all pricing materially tighter than for equivalent transactions at the end of 2020.

Whilst the Resimac and Eclipx deals both had tranches that were unavailable at launch, the coverage ratios of the available tranches were all strong. Combined with the pricing achieved, this points to a depth of bid in the public markets that should encourage, if the invitation was even required, more issuance from other non-ADI originators.

The recent release of a potential change to European Securitisation Regulations impacting the willingness or capability of some investors with funds based in the EU to participate in Australian transactions did nothing to impact demand. Any shortfall from their non-participation was more than covered by existing, new and some returning investors to Australian ABS/RMBS transaction books.

Whilst a decreasing term cost of funds clearly has a positive impact for issuers, the broader market flow-on effect sees a search for yield that is prompting investors to consider broader options and opportunities.

For some investors this means looking at participating in Australian RMBS or ABS for the first time and for others it is looking deeper into the capital structure in the search for greater yield. Additionally some investors are considering other asset classes (e.g. expanding from Prime into Non-Conforming RMBS) or a broader group of issuers (e.g. those who typically have previously looked only at ADI issuers, starting to look at non-ADI platforms).

A similar dynamic is also playing out in the private warehouse funding space. Whilst the AOFM was a welcome investor into the more challenged 2020 market, supplementing other new investors, we are now starting to see a broader cohort of investors that have the capacity to invest in unrated notes considering opportunities in the private warehouse space.

Private warehouse structures often appear less standard in nature compared to term transactions for those looking for the first time and therefore the journey from showing interest to execution can be varied in length. However, for a non-bank originator market that is continuing to see new entrants and existing originators looking to grow and expand, the increasing pool of investors with appetite in this investment opportunity is welcomed.

Should you have any queries or wish to understand more about the range of investors and funding opportunities available, then please contact Andrew and Cameron to discuss further.