The Australian Business Securitisation Fund (ABSF), overseen by the Australian Office of Financial Management (AOFM), will invest up to $2 billion in warehousing and the securitisation market in a bid to provide additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more “competitive” terms.
The fund is now seeking investment proposals for the fund, with submissions accepted until 12pm on 15 January 2020.
The AOFM has outlined that proposals must include:
- A pitch book or standard investor information pack, including background material on the proponent’s organisation, its loan portfolio, and the loans that are included in the transaction proposed for investment by the ABSF;
- A draft Term Sheet detailing the terms and structure of the transaction that is proposed for investment by the ABSF. Proposals may include alternative structures or ranges around transaction parameters for the AOFM’s consideration;
- A statement of claims against the ABSF investment principles (see summary below), which should be “focused and succinct and limited to no more than one page per principle”;
- A completed copy of the new SME lending market survey, which aims to map out the market with greater detail to enable the AOFM to implement its investment strategy “more effectively”, and to establish a baseline for monitoring market development over time.
The AOFM has outlined that all SME lenders should complete the SME lending market survey, noting that the AOFM will take into consideration whether lenders have previously participated in this survey when comparing future investment proposals.
ABSF investment principles
As previously outlined, the guiding principles will require those applying to the ABSF to demonstrate:
- Sustainable impact – For example, how the proposed investment will impact the SME lender’s development path and its SME clients and how it will aim to make “achievable, demonstrable and sustainable improvements” to both the broader SME lending market and capital markets used to fund SME lending.
- Transparency – This could include whether the applicant is willing to disclose certain aspects of the transaction that could assist with the development of the market and AOFM in its need to be accountable (such as enhanced data reporting and disclosing key transaction parameters).
- Additionality/additivity – Outlining how the proposed investment will support the objective of attracting non-ABSF investment rather than “crowding it out”.
- Competition – Detailing how the proposed investment would increase competition for SME lending.
The principles also look at risk management, such as:
- Institutional quality – ascertaining whether the institute “possesses the hallmarks of a sound and responsible institution”. For example, whether it is reputable.
- Lending practices – the AOFM will consider whether the applicant can demonstrate good governance and “how it models good practice in lending assessment, servicing and collections”.
- Social responsibility – understanding how the applicant manages environmental, social and governance issues.
- Transaction risk profile – outlining the quality of the underlying assets, the diversification of the pool and the structure of the transaction and what steps have been taken to address any risks.
- Compliance – demonstrating the ability and willingness to comply with the ABSF Act, ABSF Rules and ABSF Investment Mandate Directions as well as “additional, transaction-specific reporting requirements over the life of the transaction”.
Decisions on ABSF investments expected by Q2 2020
Decisions relating to the first round of ABSF investments are expected by the end of the first quarter of 2020/early second quarter, depending on the number and complexity of proposals received.
The AOFM said it will notify proponents individually of the outcome of their proposal and will endeavour to notify proponents who have not been shortlisted as soon as possible.
The ABSF’s first tranche of $250 million was transferred to the ABSF’s special account on 1 July 2019, while a second tranche of $250 million will be transferred on 1 July 2020.
Additional transfers, each of $500 million, will occur on 1 July of 2021, 2022 and 2023.
The administration and portfolio maintenance of the new business securitisation fund will be undertaken by an external investment manager, Challenger Investment Partners, who will undertake "detailed due diligence process on the originators and a credit analysis on the proposed transactions".
Further details around the proposal process and SME lending market survey can be found on the AOFM website.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.