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APRA Reforms Will Likely Cut Asset Bond Costs, Threadneedle Says

Asset-backed bond reforms flagged by Australia’s banking regulator will probably cut funding costs for the nation’s issuers, according to Threadneedle Asset Management Ltd.

The Australian Prudential Regulation Authority yesterday detailed plans for new rules allowing lenders to offer notes through so-called master trusts. Spreads “probably will tighten” on debt sold using this structure versus existing securitizations, Henry Cooke, a London-based investment manager at Threadneedle, said at the Australian Securitisation Forum’s annual conference in Sydney today.

Master trusts, common in the U.K., allow home-loan providers to sell multiple issues of notes backed by the same asset pool. These structures can cut swap costs for lenders offering foreign-currency securities and make it easier to create asset-backed notes with a scheduled maturity date, thereby broadening their appeal to investors.

Pricing of the new notes “will be driven by the fact that there are bigger, broader investors coming from overseas,” said Cooke. “It’s easier for them to understand and there will be a bigger investor base.”

U.K. lenders have sold the equivalent of about $100 billion of residential mortgage-backed securities through master trusts since 2010, according to Arun Sharma, head of European RMBS and ABS at Barclays Plc.

Australian borrowers raised more than A$24 billion ($22.4 billion) from RMBS this year, the most since the financial crisis, data compiled by Bloomberg show. Offshore sales have lagged behind, with newly issued U.S. dollar-denominated offerings slumping 52 percent from the total volume of 2012.

Cash flows from other assets, such as credit cards, may also be used to back debt sold via master trusts.

Commonwealth Bank of Australia, the nation’s largest bank, would consider selling notes backed by credit cards to domestic or U.S. investors, if pricing compared favorably to RMBS, covered bonds or senior-unsecured debt, said Ed Freilikh, executive manager of group funding in group treasury at the lender.

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