ME’s $500m RMBS receives high ratings

The non-major bank is gearing up to launch its second prime RMBS transaction of 2018, SMHL Series Securities Fund 2018-2, which has an indicative volume of $500 million.

The funding will be raised via six classes of securities, five of which have been assigned preliminary ratings by S&P.

The top two classes (A and AB), which are collectively valued at $484 million, received triple A ratings from S&P. The class A notes were similarly provided a triple A credit rating by Moody’s Investor Service.

ME’s classes B, C and D securities, valued at $16 million, were given ratings of double A, single A and triple B, respectively, by S&P. Class E securities were not rated by the agency.

According to S&P’s pre-sale report, the credit support for the rated bonds comprises bond subordination, excess spread and ME’s mortgage insurance, which applies to 35.6 per cent of the underlying collateral portfolio.

“Our expectation that the various mechanisms to support liquidity within the transaction, including a liquidity facility equal to 1 per cent of the outstanding mortgage balance, the principal draw function, and a spread reserve that builds from available excess spread, after the call-option date, are sufficient to ensure timely payment of interest,” S&P said.

In regards to the liquidity facility, Moody’s noted that ME’s counterparty risk assessment is below P-1. The agency stated that ME must either deposit an amount equal to the undrawn liquidity commitment at the time into an account with a P-1 rated bank or obtain a replacement facility provider.

According to Moody’s report, fixed rate swaps are to be provided by “suitably rated counterparties” to balance out the mismatch between the interest rates charged on the fixed rate loans, which represent 41.8 per cent of the portfolio.

The report further states that interest-only loans account for 6.6 per cent of the portfolio, while investment loans represent 19.8 per cent, which Moody’s noted are below the Australian mortgage market average. Non-purchase loans represent 61 per cent of the portfolio.

Additionally, the portfolio has a weighted-average scheduled loan-to-value ratio of 62.3 per cent and a weighted-average seasoning of seven years.

Pepper Group’s second prime and non-conforming RMBS of the year, valued at $700 million, also received ratings this week.

Both Moody’s and S&P assigned triple A provisional ratings to the bulk, or $589 million, of Pepper’s RMBS.

[Related: Pepper's $700m RMBS gets rated]

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