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ASX-listed brokerage group Yellow Brick Road Holdings Limited (YBR) — which includes franchise brokerage Yellow Brick Road, wholesale aggregator Vow Financial and lending arm Resi— has secured greater funding for its lending business.
Resi Wholesale Funding Pty Limited (Resi), the securitisation joint venture entity that it part-owns with Magnetar Capital, has secured another facility limit increase and availability period extension for its senior debt facility.
The senior facility has been extended by another 12 months (to 21 February 2024) with the limit increased by an additional $100 million. This brings its total size to $550 million.
In addition, the group has also secured a new mezzanine finance partner for its Resi Warehouse.
Sandhurst Trustees Limited (Sandhurst) has agreed to provide another $49 million in senior mezzanine funding for the Resi Warehouse. The wealth manager (which is a wholly-owned subsidiary of Bendigo and Adelaide Bank Limited) is the responsible entity for each of the Sandhurst Select 90 Fund and the Sandhurst Investment Term Fund.
Given the expanded funding, the Resi Warehouse now has a funding capacity of $611 million.
The current size of the residential mortgage portfolio within the Resi Warehouse is approximately $380 million, according to YBR.
The group said that the expanding funding will enable it to reduce the cost of funds for Resi; enable $30 million of the first-loss capital in the Resi Warehouse to be returned on settlement to YBR and Magnetar ($4.5 million and $25.5 million, respectively) tomorrow (2 March); and “provide sufficient origination runway for the warehouse to consider the “most appropriate timing, sizing and composition for its first RMBS securitisation “term-out” transaction”.
Resi has been building out its presence in the mortgage market in the past few years, building an assessment platform to “enable speed to credit decisioning”.
It now has credit approval to broaden its product offering in the Alt Doc and Near Prime segments of the mortgage market.
These segments are increasingly being targeted by non-bank lenders as they deliver greater margin and have been increasing in size and importance in a rising rate environment.
Speaking of the expanding funding. Adrian Bouris, chairman of Resi Wholesale Funding (RWF) and a director of YBR, said: “We gladly welcome Sandhurst into our warehouse/securitisation programme.
“We have conducted an extensive search in the Australian mezzanine market to find the right partner for us and believe Sandhurst’s credentials and outlook match our aspirations to become a major non-bank funder of Australian mortgages.”
Mark Bouris, executive chairman of YBR and a director of RWF, added: “The introduction of Sandhurst into our RWF business is a major milestone in its evolution. The next major milestone will be our first ‘term-out’, and thereafter RWF will have ‘graduated with honours’ from being a start-up a few years ago to being able to sit proudly alongside many of Australia’s most established long-term non-banks.
“As I said at the last YBR AGM, over time RWF will become a major powerhouse within the YBR group.”
YBR Group sees settlements drop
The funding announcement comes as the YBR group revealed its financial results for the half year ended 31 December 2022 (1H23).
According to its financial overview, Resi settlements rose 42 per cent on the prior comparative period, to $283 million, and “ranked no.1 of share of applications for non-bank lenders”.
However, overall, the group saw settlements drop 1.5 per cent down on the prior comparative period, to $10.5 billion.
Brokers aggregating under Vow settled $9.2 billion of this figure.
Noting the figures, the group said that overall loan volumes had eased after a “buoyant FY22 property market” (which had resulted in a record year for the YBR Group) and as higher interest rates reduced borrowers’ capacity to borrow.
Moreover, it flagged that the larger banks were deploying “aggressive pricing strategies” to gain market share from non-major banks and non-banks recently, as high levels of borrowers look to refinance loans.
However, the group’s overall loan book increased 11.4 per cent to $61.6 billion.
The mortgage broking arm of the business now has a total of 1,205 brokers in it; 1,086 under Vow and 119 under the YBR franchise brand.
YBR said that it would continue to spend to “support brand recognition of Yellow Brick Road to ignite [its] franchise recruitment strategy”. It is also reportedly investing in data analytics to “assist brokers in improving customer retention, leads management and conversion”.