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Pepper’s $700m RMBS highly rated

Pepper’s $700m RMBS highly rated

Moody’s has provided its highest provisional rating to $589 million of Pepper Group’s second residential mortgage-backed securities (RMBS) issue of 2018.

Pepper launched its second non-conforming and prime RMBS issue of 2018, valued at around $700 million.

The majority of the funding, or $490 million, will be raised via three tranches of A1 securities, one of which is USD-denominated scheduled amortisation tranche, valued at US$175 million (AU$238 million). The A1-u tranche will amortise in full over 59 months.

The single A2 tranche is expected to raise $99 million.

Pepper’s class A1 and A2 securities have all received triple A credit ratings from Moody’s Investors Service. This is matched by Standard & Poor’s triple A ratings for the two classes.

The remaining classes (B, C, D, E, F and G), collectively valued at $111 million, were not rated by Moody’s. However, Standard & Poor’s assigned ratings of double A for class B, single A for class C, triple B for class D, double B for class E, and single B for class F.

In terms of risk, Moody’s noted that the portfolio has a “relatively high” weighted-average scheduled loan-to-value (LTV) ratio of 72.2 per cent, with 35.2 per cent of the loans with a scheduled LTV ratio higher than 80 per cent.

Further, 29.9 per cent of the $700 million portfolio comprises loans extended to borrowers with previous credit impairment (default, judgement or bankruptcy), while 35.1 per cent of the portfolio comprises loans underwritten on an alternative documentation basis.

Moody’s additionally noted that the portfolio has a “low” weighted-average seasoning of 7.1 months, with 85.4 per cent of loans originated in the last six months.

Pepper had earlier this year priced its first RMBS of the year at $1 billion, after attracting strong oversubscription exceeding $2 billion.

Excluding its latest RMBS, Pepper has issued more than $11.6 billion of RMBS across 26 non-conforming and prime RMBS issues.

[Related: Arrears on non-conforming loans continue to fall]

Pepper’s $700m RMBS highly rated
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