The original size of the Pepper Group’s third non-conforming RMBS transaction of 2018 was $700 million, but it was upsized to $1 billion following strong demand from new and repeat investors.
The Pepper Residential Securities Trust No 21, as it is called, is also the lender’s second RMBS issue to be priced at $1 billion.
The issue has been supported by 29 separate investors from the US, Australia, Europe and Asia.
National Australia Bank helped arrange the transaction, with Citigroup Global Markets and Nabsecurities LLC as the joint lead managers.
The funding has been raised via 10 classes of securities.
The majority of the funding, or $700 million, has been obtained via three tranches of A1 securities, one of which is USD-denominated tranche, valued at US$250 million (around AU$340 million). Commonwealth Bank and Westpac were the co-managers on the US$250 million A-1u notes.
The issuer said that the deal was structured “in a manner that met the needs of [Pepper’s] growing global investor base”.
The three tranches of A1 securities all received triple A ratings from both Standard & Poor’s and Moody’s Investors Service.
The single A2 class of securities, valued at $141 million, was similarly assigned a triple A rating by both ratings agencies.
The next five classes (B, C, D, E and F), collectively valued at $159 million, were provided 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. Class G was not rated.
Commonwealth Bank, NAB and Westpac were the joint lead managers on all the Australian dollar-denominated securities. In terms of risk, Moody’s noted that the portfolio has a “relatively high” weighted-average scheduled loan-to-value (LTV) ratio of 71.9 per cent, with 37 per cent of the loans having a scheduled LTV ratio higher than 80 per cent.
Further, 29.5 per cent of the $1 billion portfolio comprises loans extended to borrowers with previous credit impairment (default, judgement or bankruptcy), while 34.5 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 8.1 months, with 85.7 per cent of loans originated in the last six months.
The transaction settled on 31 July.
Pepper had priced its first RMBS of the year at $1 billion, after attracting strong oversubscription exceeding $2 billion. The latest RMBS transaction was subsequently put on hold for about four months.
The non-bank lender said that it has issued more than $13.2 billion of RMBS across 28 non-conforming and prime RMBS issues since its inception.
[Related: ME’s $500m RMBS receives high ratings]