Quarterly Structured Finance Support Fund (SFSF) Update
14 July 2020
This notice is provided to support market transparency and to provide an update on the AOFM’s Structured Finance Support Fund (SFSF) activities as at 30 June 2020. As at this date, total SFSF investments and commitments were just over $2.7 billion.
There are three main work streams for the provision of SFSF support: (1) public (primary and secondary) markets; (2) private (warehouse) markets; and (3) forbearance (the establishment of arrangements to enable small lenders to provide forbearance for borrowers experiencing Covid-19 related hardship).
Secondary market activity has been focused on ‘switch’ transactions where the AOFM has invested in existing securities to facilitate the recycling of capital into new issuance. The majority of this capital has supported primary market transactions, with a small amount (less than $10 million) directed into warehouse transactions.
Ten public securitisation market transactions were priced over the period from late March to 30 June 2020. Nine transactions were supported by the SFSF (while the proponent of one relatively small refinancing transaction did not seek support). The table below details $6 billion of primary transactions supported directly or indirectly (through ‘switches’) by the SFSF. All but the first of these were completed in the June quarter. The level of SFSF support averaged just under 20 per cent, with a range of 9.5 to 42.3 per cent. For each dollar of SFSF support just over four dollars of private sector capital was invested. The ratio of secondary market ‘switches’ to direct primary transaction support to date is about 2:1.
Table 1: Analysis of primary market support
|Sponsor||Issue Name||Primary ($)||Secondary ($)||Total ($)||Deal Volume ($)||SFSF Share|
|La Trobe||LTFCMT 2020-1||-||119,382,467||119,382,467||1,250,000,000||9.55%|
|Resimac||Resimac Premier 2020-2||-||85,461,000||85,461,000||500,000,000||17.09%|
|Columbus Capital||Triton 2020-2||-||119,451,831||119,451,831||600,000,000||19.91%|
|Pepper||Pepper PRS 26||-||296,165,182||296,165,182||700,000,000||42.31%|
|Red Zed||RedZed STC 2020-1||77,100,000||-||77,100,000||300,000,000||25.70%|
|Bluestone||Sapphire XXIII 2020-1||-||95,318,469||95,318,469||350,000,000||27.23%|
* Of the c. $63.5 million difference between the total investment in the above table and the total investments reported on the AOFM’s website as at 30 June, around $53.5 million is attributable to switches against a primary transaction that had yet to price by 30 June.
Over 100 expressions of interest in the SFSF have been received from smaller lenders and the vast majority of these have been seeking investment in warehouse facilities. As at 30 June 2020 SFSF commitments of just over $1.5 billion have supported 24 individual warehouses, sponsored by 18 borrowers (excluding one warehouse proposal which was withdrawn by the applicant after approval).
The total capacity of warehouses for which support has been provided is $12.4 billion. The SFSF share of this capacity is approximately 12 per cent, suggesting that for every dollar invested, about seven dollars of private sector capital has been retained in these facilities. This relatively high multiple has been driven by a deliberate skew towards investment in mezzanine tranches, where the market dislocation has been assessed as greatest.
The AOFM has worked with the securitisation industry, represented by the Australian Securitisation Forum (ASF), to establish a special purpose vehicle that will support the capacity of small lenders to make forbearance provision for Covid-19 related hardship cases among their borrowers.
Expressions of interest to participate in the forbearance special purpose vehicle (fSPV) were sought on 21 May and the AOFM has today released a separate notice regarding proposals for access to the fSPV. The AOFM expects that the fSPV will be in a position to on-board participants during the course of this month, with drawdowns to be aligned with the payment cycles of the participating trusts. The AOFM will use the SFSF to invest in the senior ranking securities issued by the fSPV.
BNY Mellon has been appointed as trustee, trust manager and security trustee for the fSPV and the collateral verification agent (CVA) will be Deloitte Touche Tohmatsu.
Eticore and Clayton Utz have acted as advisers to the AOFM to support its work on the fSPV and early proof of concept work was undertaken for the AOFM by the Clean Energy Finance Corporation.
Further information on the SFSF can be found on the AOFM website.