YBR secures RMBS warehouse facility

Yellow Brick Road Holdings Ltd (YBR) has revealed that it has received final credit approval from an Australian bank for it to provide an initial $120-million residential mortgage-backed securities (RMBS) securitisation warehouse facility.

The facility will be provided to the intended RMBS program trust manager, sponsor and servicer, Resi Warehouse Funding (RWF).

As announced earlier this year, while RWF is currently a wholly owned subsidiary of YBR, it is intended to be owned as a joint venture (JV) between YBR and an international alternative asset manager (JV Partner) in due course.

The Resi sales team currently sources and services the mortgage distribution networks and mortgage funding entities and will reportedly undertake the credit function for the YBR Group’s intended securitisation program.

As announced in May, this securitisation program will be taken “in joint venture with a major US alternative asset manager” and intends to manufacture and fund mortgage products for YBR’s in-house and third-party distribution outlet.

According to YBR, the joint venture is “in the later stages of final due diligence and negotiation and documentation in this long and complex process with multiple parties”.

Speaking after RWF accepted the detailed credit approved Securitisation Warehouse Term Sheet last week, YBR executive chairman Mark Bouris said that the deal marked “another major milestone on [YBR’s] journey to commence a securitisation business in Australia”.

He continued: “It allows YBR and our JV partner to now finalise their documentation of the RWF JV and the subscription arrangements for the equity and debt funding for the JV and the initial C Note component of the intended RMBS program.

“These matters have been substantively agreed for some time but have been held in abeyance pending receipt of the bank credit approval. 

“It is pleasing that this has now come, and we can advance matters more rapidly.”

However, YBR noted that any drawdown of the RMBS warehouse facility and commencement of a securitisation program would be subject to RWF completing definitive legally binding transaction documentation with the warehouse bank lender and all other relevant third parties and satisfying any other related conditions that may be included in such transaction documentation.

“As we have announced to the market in April 2019, we have been simplifying the business to focus primarily on mortgages, as well as restructuring the cost base to be more appropriate to that new focus,” Mr Bouris said.

“Establishing our own mortgage product has taken much longer and been much more difficult to establish than I initially thought it would, in large part because of significant regulatory change and uncertainty. 

“However, we are now well advanced in our negotiations to access the bank wholesale and debt capital markets to fund our own products. We expect to conclude arrangements for the remaining components of that funding matrix within this calendar year. 

“Once complete, we can enter the market with our own mortgage product. We will most likely do this under the Resi home loan brand, which we own, and we will distribute through our owned YBR network and the Vow aggregator platform,” he told shareholders.

Bouris optimistic for the future

The news came as YBR released its preliminary final report and associated accounts for the financial year 2019, which showed a net loss after tax of $37.39 million.

The majority of this net loss was due to the previously announced non-cash asset write-down of $33.95 million on the carrying value of the wealth management and lending business and various other intangible assets across the group.

However, the group was also impacted by a 19 per cent fall in lending volumes due to “market forces”, which negatively impacted revenue.

YBR also noted that there was a non-cash charge against operating loss of $5.4 million relating to a decrease in the present value of net trail commissions from the underlying loan book from $50.26 million to $44.87 million.

Other costs included a 5 per cent increase in operating expenses, largely due to redundancy expenses, the immediate expensing of costs associated with business projects (previously expenses of this nature were capitalised), the write-off of a prepayment relating to the wealth business, and expenses incurred with “the 2018 takeover defence, the current securitisation initiative and associated sourcing of funding”. 

Sponsorship revenue was also negatively impacted by “the new regulatory environment,” the report read.

Overall, the group achieved a positive cash flow from operations of $379,000, notwithstanding carrying costs that have reportedly been eliminated in the restructuring. 

YBR also revealed that its chief financial officer and company secretary, Richard Shaw, would be leaving the group “for personal reasons”.

Mr Bouris said: “I would like to thank Richard Shaw, our CFO and company secretary who is leaving the group for personal reasons, for all his help and hard work over many years. 

“We have retained the services of a highly experienced finance consultant, in the interim, who is well known in the financial markets.”

YBR’s chief risk officer, Sean Preece, will fulfil the company secretarial duties moving forward. 

Looking forward, Mr Bouris noted that there have been some “new shoots” showing in the residential housing market, with a “material increase in enquiry for mortgages, applications lodged, and approvals granted”.

These have reportedly helped deliver YBR a 36 per cent increase in new business.

“We have completely restructured our business to be less costly and more efficient in loan processing, and so we can operate on lower loan volumes than we’ve seen during our winter months,” Mr Bouris said.

“We believe the uncertainty for the broking sector caused by the royal commission is now firmly behind us. Mortgage brokers now have greater certainty in their remuneration structure. Gone, too, are the threats to negative gearing and capital gains tax that put a damper on the mortgage market…

“We have a view that the increased complexity of responsible lending requirements will see consumers place an even greater reliance on intermediary mortgage brokers,” he continued, outlining that he believed that the origination of mortgage loans will increasingly be dominated by brokers and rise beyond 70 per cent of all transactions in Australia.

He concluded: “Our strategic focus is now singular. It is to provide mortgages through our franchised YBR branches and our extensive Vow independent broker business. 

“I think that my initial premise for establishing Yellow Brick Road is now becoming a reality, despite so many headwinds over so many years.

“I have never felt more positive about this company’s prospects and more excited about the future of the intermediary mortgage market,” the executive chairman concluded.

[Related: YBR to offload wealth business to focus on mortgages]