Pepper Australia Pty Limited (“Pepper”) and Joint Lead Managers, National Australia Bank (Arranger and Redemption Facility provider), Commonwealth Bank of Australia (Cross Currency Swap provider), Westpac Banking Corporation and Citigroup Global Markets Inc. confirmed that the Pepper Residential Securities Trust No. 14 (“PRS14”) A$550 million non-conforming RMBS issue priced on Friday 5 June 2015.
Transaction details are as follows:
|Class of Notes||Provisional Ratings Moody's / S&P||Issue Amount (Million)||WAL (Years)¹||Issue Margin|
|A1-u1||P‐1(sf) / A‐1+(sf)||US$250.0||1.0||1m Libor + 0.33%|
|A1-a||Aaa(sf) / AAA(sf)||A$61.0||2.3||30 Day BBSW +1.05%|
|A-2||Aaa(sf) / AAA(sf)||A$56.1||2.3||30 Day BBSW +1.35%|
|B||Aa1(sf) /NR||A$53.9||4.2||30 Day BBSW +2.00%|
|D||Baa2(sf) / NR||A$11.0||4.2||Undisclosed|
|F||B2(sf) / NR||A$8.2||3.2||Undisclosed|
¹ WAL is based on a linear CPR ramp of 22% to 27% over the first 12 months from the Settlement Date and then a flat CPR of 27% thereafter, Stepdown Criteria being met and Call Option being exercised at the first available opportunity.
All tranches were priced at par.
Settlement Date: Friday 12th June 2015
Clean up call: Any Payment Date occurring:
- From June 2020 (ie. 5 years); or
- When the aggregate Invested Amount of the Notes outstanding is less than 20% of the aggregate initial Invested Amount of the Notes.
Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation were the Joint Lead Managers of the Australian tranches, and NAB Securities LLC and Citibank were the Joint Lead Managers for the US tranche.
This transaction is Pepper’s first public non-conforming RMBS issue for 2015. The initial deal size of A$500 million was upsized to A$550 million in response to strong investor demand, making it the largest non-conforming issue in Australia since the financial crisis. Fifteen investors participated in the transaction. Offshore investors represented 71.2% of the total amount offered, and non-bank investors represented 91.8%.
In order to satisfy European minimum retention requirements, Pepper will retain a minimum of 5% each tranche in the structure – a first for an Australian non-bank RMBS issuer.
“It is very satisfying to complete the largest non-conforming RMBS issue since emergence of the financial crisis in 2007,” said Pepper’s Co-Group Chief Executive Officer, Patrick Tuttle. “This is Pepper’s 16th public RMBS issue since 2003, which is a testament to the longevity of our programme and the loyal investor support we have both domestically and offshore,” added Tuttle.
“The strong response from overseas investors to the 5% vertical slice that Pepper is retaining in this deal is pleasing to see. This is the first time an Australian Non-Bank issuer has gone to market with this form of risk retention and it was certainly instrumental in attracting investors to the programme and allowing us to upsize,” said Pepper Group Treasurer, Todd Lawler.
“The upsize in issuance volume to A$550 Million is a pleasing result that has allowed Pepper to price the largest Australian non-conforming RMBS since 2007,” said Justin Mineeff, Executive Director, Debt Markets Securitisation, Commonwealth Bank of Australia. “This transaction provides further evidence that the capital markets are supportive of term funding specialist mortgages through the capital spectrum,” added Mineeff.
“NAB is delighted to have arranged this transaction for Pepper, and to achieve an upsized transaction with 5% risk retention was a particularly good result. Overall it was a well-diversified book of investors, which is testament to Pepper’s commitment to exploring new markets and continuing issuance of transactions including foreign currency tranches,” said Sarah Samson, Director, Securitisation Originations, National Australia Bank
“Pepper’s non-conforming RMBS issue garnered strong investor interest which saw the transaction upsize from A$500 million to A$550 million, with multiple tranches achieving significant oversubscription. This is the largest non-conforming transaction since June 2007, and is reflective of investor support for Pepper and the strength of its servicing capabilities,” said Haan Ti, Associate Director Structured Finance, Westpac Institutional Bank.
Pepper is a diversified financial services business with specialist experience in lending, advisory and asset management across the residential, auto and equipment and commercial property sectors. It is a specialist servicer of prime and non-conforming residential mortgages and consumer loan and lease receivables. PRS14 is the sixteenth public issue of residential mortgage-backed securities backed by Pepper-originated and serviced mortgages, increasing its total RMBS issuance since 2003 to A$6.5 billion.