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Pepper breaks into US sub-prime securities

Non-bank lender Pepper has issued Australia’s largest sub-prime RMBS transaction since the GFC and its first non-conforming placement in the US with joint lead managers CBA and NAB.

This week Pepper announced that the Pepper Residential Securities Trust No. 12 (PRS12) AU$500 million (equivalent) non-conforming RMBS issue has priced.

“The inclusion of a US dollar tranche in our PRS non-conforming program marks another significant milestone in the long history of non-conforming issuance by Pepper, dating back to 2003,” Pepper Australia chief executive Patrick Tuttle said.

“The participation of US investors, along with a small number of European investors, in our non-conforming program helps to further diversify our offshore investor base, which is vital for a frequent RMBS issuer like Pepper,” Mr Tuttle said.

Last week, AFG announced its first RMBS issue for 2014, telling Mortgage Business it would place one more transaction before year end.

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Pepper’s PRS12 issue was well supported by investors across the entire capital structure, with a total of 14 domestic and 7 foreign investors participating, many of whom are repeat buyers, according to Pepper group treasurer Todd Lawler.

“Our track record and commitment to always call our term deals at the first available date, continues to attract strong support from investors, and we are now developing repeat buying from a number of US and European investors,” Mr Lawler said.

CBA acted as Australian dollar arranger and currency swap provider on the issue, while NAB was the US dollar arranger and redemption facility provider.

CBA's head of debt markets securitisation, Rob Verlander, said the transaction is a benchmark for Pepper, entering the US market with non-conforming assets for the first time.

“New investor participation as well as significant demand from repeat buyers facilitated a tightening in price across all tranches and an increase in volume compared to their two 2013 bon-conforming RMBS trades,” Mr Verlander said.

“This is the largest Australian pure non-conforming RMBS transaction completed since the financial crisis,” NAB’s director of debt markets, Sarah Samson, said.

“There was a healthy level of oversubscription across all of the Australian and US dollar tranches, and it is great for Pepper to be able to call on the US investor market to enable this larger transaction size and pricing.”

Pepper breaks into US sub-prime securities
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