Mortgage-backed securities return with NZF offer

First mortage-backed securities offer in three years comes to market

May 26 (BusinessWire) - The first offer of mortgage-backed securities in three years is being wheeled up for institutional investors by NZF Group, seeking to sell $100 million of securities, backed by a package of nearly 500 Kiwi home loans.

RMBS's have been out of favour because of their association with the US housing crunch and subsequent global financial crisis.

The NZF offering is lead managed by Westpac Institutional Banking, and is available only to institutional investors, with the smallest allowable deposit $500,000.

Managing director John Callaghan reported "strong" initial interest in the issue.

Four classes of note provide credit support to higher class securities, almost all of which have been rated AAA by Standard & Poor’, which said credit support for the securities was “sufficient to withstand the pressures we apply."

The notes are subordinated, mortgage insurance covers 100% of the face value of all loans, accrued interest, and costs of enforcement.

NZF’s $87.8 million issue class A1 notes are rated AAA, its $9.1 million issue of class A2 notes are also rated AAA, while the $2.5 million issue of class B notes have been rated AA-, and the $600,000 class C notes have not been rated.

S&P also approved of the RMBS’ ability to maintain liquidity and make interest payments to investors.

Over time, the credit risk from lower ranked notes is expected to reduce as borrowers repay their loans.

S&P said almost a third of the portfolio involved interest-only loans of up to five years, increasing the chance of default, as did the fact that some 40% of the secured properties were outside New Zealand’s main cities.

The loan pool comprises 486 loans, 342 of them consolidated at a total value of $99.7 million. The biggest loan is just over $1 million, and its average loan size is $291,000.

NZF, a finance company, is in the process of closing its retail deposit-taking arm to concentrate on institutional business.

(BusinessWire) 17:26:33

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