RAMS Home Loans, one of Australia's biggest independent home loan originators, has launched the largest ever residential mortgage-backed securitization (RMBS) from Down Under. The A$1.45 billion ($755.6 million) transaction, for which JP Morgan acted as sole lead with Salomon Smith Barney as co-lead, bettered September's A$1 billion offering from Interstar Securities.
RAMS, established in 1991, funds itself exclusively through securitization and has now raised almost A$8 billion using this method. The latest deal is the issuer's 14th overall deal and 11th domestic offering, with the other three deals denominated in Euros.
The deal, issued via the RAMS Mortgage Corp special purpose vehicle (SPV), is backed by a portfolio of over 9,500 prime residential mortgages worth around A$1.2 billion. The weighted loan-to-value of the pool is 67.8% and the average seasoning of the loans is 23.9 months.
RAMS 11 was split into four tranches, three of which were rated triple-A by both Moody's and Standard & Poor's and one AA- tranche only rated by S&P. The deal was structured in Australian dollars and documented in Eurobond format to entice foreign investors, attracted by the relative value of Australian mortgage-backed paper. JP Morgan and Colonial State Bank will act as interest rate swap providers.
The A$400 million floating rate A1 bonds, with average lives of 2.72 years, carry a coupon of 34bp over one-month bank bills, which are currently yielding 4.38%.
The A2 series was split into A$285 million of fixed rate bonds and A$100 million of floaters. The fixed rate notes, for which a soft bullet structure was used, carry a coupon of 5.71%, 33bp over the benchmark swap rate. Legal maturity will be reached in July 2005.
The floating rate bonds, also characterized by the same bullet structure, carry a coupon of 35bp over one-month bank bills. The bonds, as with the other floaters in this deal, will reach legal maturity in December 2035.
In addition, the transaction featured A$609 million of A3 bonds, which have 6.34 year average lives and bear a coupon of 39bp over bank bills. The junior A$56 million class B tranche offers 60bp over bank bills with a 6.5 year average life.
The average life of each tranche was structured to match the expected repayment time of the underlying asset pool.
Credit enhancement for the triple-A paper comes from subordination on the class-B notes. There is also 100% primary mortgage insurance cover on all loans, which gives the deal extra credit support and helped secure the high ratings.
Rob Duke, director of debt capital markets at JP Morgan, says that investor appetite for the deal was excellent, with the initial offering increased significantly to meet demand.
"The issue was up-sized by A$550 million with overwhelming demand from both local and offshore investors," he comments. "The main source of the extra interest came from offshore accounts, which ended up taking around 30% of the bonds. The Eurbond documentation was important in this respect, because it allows a lot of buyers in places like Japan and Europe to fund in Aussie dollars."
Duke adds that the main offshore interest came from bank funds and conduits, while domestic funds and insurance companies were the major onshore buyers of the deal.
Rowan Harry, treasurer of RAMS, also declares himself happy with the transaction's reception. "The issue was extremely well supported by local investors and offshore investors in Asia and Europe," he states. "In terms of pricing, comparisons with our previous deals are difficult because it depends on market conditions at the time. Pricing has gone out a little since September 11, but compared to other recent deals, and given the volume of this issue, we still got tight pricing.
"Around A$450 million of the loans have been performing for between four to five years," adds Harry. "This means the collateral is very well seasoned with a low loan-to-value and investors found that appealing."
Harry added that RAMS was likely to tap the domestic market twice more in 2002.
