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Thursday, 22 February 2018

Structured Finance Issue

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In a bumper year for Australian asset-backed financings, the country’s first master-trust securitisation stands out as a game-changer.

Latitude Financial Services, Australia’s biggest consumer retail finance company, benefited from an extensive marketing effort at home and abroad for its inaugural securitisation of credit card receivables.

Offshore and onshore investors left the A$1bn (US$755m) deal three times covered on March 29, even though it priced inside guidance and was upsized from an indicative A$750m. Bank of America Merrill Lynch was the sole arranger, working alongside joint lead managers Deutsche Bank and NAB.

The reception to the trade demonstrated the appeal of the assets and the structure, and has already led to Latitude revisiting the market since its debut. It is also set to encourage other Australian institutions with credit card assets, to follow in its footsteps.

Familiarity with the master-trust structure fuelled overseas demand, with foreign accounts picking up the lion’s share (72%) of the trade. Distinct pools of demand, including UK bank treasuries, Japanese investors and Australian accounts, helped to create price tension, as overseas investors could see value compared to comparable securities available in their home markets. The structure of the Latitude Series 2017-1 notes is similar to UK master trusts.

Work with rating agencies, analysts and a global non-deal roadshow well in advance of the deal helped pave the way and ensure domestic investors got to grips with the structure. Master trusts purchase eligible receivables from the sellers on a revolving basis, making them well suited for credit card issuers, but requiring some explanation for domestic ABS investors encountering the structure for the first time.

The order book confirmed the potential of the format in a country where RMBS dominates the securitisation landscape and where, as of January 2016, lenders held almost A$51.5bn of credit and charge card loans, according to Reserve Bank of Australia data.

The Latitude trade, Credit Card Loan Note Trust Series 2017-1, drew 36 investors with Europe taking 38%, Asia 33%, the US 1% and domestic accounts 28%. Real-money accounts bought 73.5% and bank balance sheets 26.5%.

The A$1bn ABS comprised six tranches, each with three-year soft bullet tenors, plus an unrated A$100m tranche that Latitude will hold.

The A$689.5m Class A1s and the A$125.65m Class A2s priced at one-month BBSW plus 125bp and 185bp, inside 130bp–140bp and 200bp area initial guidance, respectively.

The A$57.6m Class Bs, the A$52.35m Class Cs, the A$41.86m Class Ds and the A$36.64m Class Es priced 240bp, 300bp, 375bp and 525bp wide of one-month BBSW, respectively, comfortbly inside guidance of 250bp area, low 300s, 400bp area and 575bp-600bp.

Latitude’s notes are backed with a receivables pool of 1,840,354 eligible accounts, totalling almost A$3.8bn.

To see the digital version of this report, please click here

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