Quarterly SFSF Update | January 2021
15 January 2021
This note provides an update on the AOFM’s Structured Finance Support Fund (SFSF) activities as at 31 December 2020. As at this date, total funds invested or committed by the SFSF were $3.75 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 assist small lenders to provide forbearance for borrowers experiencing Covid-19 related hardship).
Public securitisation market conditions continued to improve through the quarter, reducing the need for SFSF support for primary and secondary markets. Significantly, non-ADI RMBS issuance closed the year on a very strong note with full year issuance volumes well ahead of prior years and margins on prime RMBS closing below December 2019 levels. Market feedback received by the AOFM is that its preparedness to invest SFSF funds to fill gaps across investment grade tranches has reduced the execution risk for issuers of public securitisation transactions. Notably, while the AOFM agreed to support ten new issues across eight issuers through the December quarter, the support offered was uniformly not required. Moreover, five issuers did not approach the AOFM for support for their new issues.
Cumulative public market investments made since the SFSF’s inception stood at around $1.36 billion as at 31 December, and no investments were made through the December quarter.
The AOFM continued to receive expressions of interest for the SFSF to invest in private warehouse facilities throughout the quarter, although the rate has slowed. As at 31 December 2020, SFSF commitments of circa $2.3 billion have supported 45 individual warehouses sponsored by 34 eligible lenders. In the quarter ending 31 December, four individual warehouse investments, sponsored by four eligible lenders were approved. The total capacity of warehouses for which support has been committed since the SFSF’s inception is circa $17.8 billion.
Noting the prior observations made with regards to the improvement in primary market conditions, the last quarter has seen an increase in the number of issuers expressing an interest in replacing the AOFM’s positions with private sector investment. The first instance of the SFSF being replaced by a private sector investor settled in December 2020.
During the course of the December quarter, five participating originators drew down on their limits. Two approved originators are expected to complete the onboarding process in January. Total draws on the fSPV stood at $45 million as at the end of December, well inside the approved limits for the fSPV of $101.5 million. Draws under the fSPV have been substantially lower than expected due to the rapid improvement in Covid-19 Hardship portfolios through the December quarter. One originator has already made repayments on capitalised interest.