Macquarie Sells First ABS in Euros Since Crisis as Costs Slide

Macquarie Group Ltd. (MQG) sold asset-backed securities denominated in both Australian dollars and euros for the first time since the global financial crisis after currency-swap costs fell to 2008 levels.

The A$1.035 billion ($966 million) deal is backed by car and equipment leases, according to a statement from the Sydney-based bank. It includes 225 million euros ($307 million) of top-rated Class A-E notes priced to yield 43 basis points more than the European interbank offered rate, while the A$560 million of Class A-A notes denominated in Australian dollars priced at a spread of 80 basis points over the bank-bill swap rate.

The last time Macquarie sold euro-denominated notes through its SMART asset-backed securities program was 2008, before the seizure in global credit markets. The appeal of a new issue in the common currency was boosted by the drop in cost of swapping euros into Australian dollars to near the lowest since then.

“The euro’s become more attractive as a source of funding and there was good investor demand, so it made sense to tap into that,” Kevin Lee, the Sydney-based division director in debt origination and structuring at Macquarie, said by phone. “Investors in Europe are keen for diversification and there hasn’t been much securitized issuance in euro out of Australia for quite a long time.”

Swap Costs

The two-year Australian dollar-euro basis swap, a measure of the cost of switching funds, fell as low as 15.8 basis points on April 22, the least since October 2008. It was at 23.5 today, compared with 43.5 at the end of 2012. The Aussie bought 68.33 euro cents as of 2 p.m. in Sydney.

“It’s all about doing an issue that’s competitive from a cost perspective, and the combination of the issue spread and the swap costs worked well for this transaction,” said Lee. “If you look at the long-term Aussie-euro swap curve you see that from an Australian issuer’s perspective it’s improved over the past 12 to 18 months.”

Australian investors bought 51 percent of the notes, with 22 buyers participating in the total transaction. The issuer retained A$25.9 million of Class B notes and A$119 million of seller notes. The expected average life of both the top class Aussie and euro notes is 1.9 years.

The sale was managed by Macquarie, Australia & New Zealand Banking Group Ltd., JPMorgan Chase & Co. and Royal Bank of Scotland Group Ltd. It follows a $500 million issue by Macquarie earlier this year that included notes denominated in U.S. dollars.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Chris Bourke, Ken McCallum

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