Unorthodox Home-Loan Bonds Back in Frame for Australian Issuers

The first new Australian mortgage bond in three months is providing encouragement for issuers considering transactions backed by more unorthodox home loans.

A planned issue from Liberty Financial Pty Ltd. has been given provisional ratings by Moody’s Investors Service, the credit assessor said, while Pepper Group Ltd. is set to meet with investors, according to a statement from sale managers. The announcements follow a A$1.575 billion ($1.2 billion) residential mortgage-backed securities deal last week from Commonwealth Bank of Australia, the first offering of 2016.

Although the Australian securitization market is traditionally quiet at the start of each year, global financial turmoil in recent months has further complicated fixed-income issuance and spurred a widening of credit spreads worldwide. At the same point last year the Australian RMBS market had already seen four transactions totaling A$6 billion, according to data compiled by Bloomberg.

While the CBA notes were backed by prime mortgages, the deals being considered by Liberty and Pepper may include non-conforming loans. That means that some of the mortgages backing the securities could be to borrowers with impaired credit histories, limited documentation or who don’t otherwise meet traditional lending criteria.

Pepper last came to market in October, also with a non-conforming deal, while Liberty’s last Australian securitization was in April. Excluding refinancing of individual tranches from old deals, the CBA deal last week was the first RMBS since Firstmac Ltd.’s A$500 million offering in November.

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