ABSF Update – Public Term Transactions

The AOFM, through the ABSF, aims to enhance the development of the securitisation market’s capacity to support both private and public transactions backed by loans to SMEs. To date the ABSF has made investments in three private warehouse facilities and a fourth is expected to be finalised in the coming months. The AOFM now plans to use the ABSF to support the development of the market for public term securitisation transactions backed by SME lending by reducing execution risk.

The AOFM will consider proposals to partially underwrite senior tranches of potential public transactions. It will also consider underwriting mezzanine tranches with an investment grade credit rating.

The AOFM may, at its discretion, waive some of the proposal submission requirements for term public transactions where the AOFM is familiar with the proponent from past proposals. For public term transactions, it will waive the proscription on making submissions within six months of a previous submission.

An important consideration will be whether pools to support proposed transactions comprise loans predominantly from underdeveloped segments of the SME lending market. Moreover, proponents will be required to adopt and implement the SME lending data template published by the Australian Securitisation Forum within an agreed timeframe and at the proponent’s cost.

The AOFM will also require that the ABSF is the first investor to be scaled in the book-build process, consistent with the aim of attracting and not crowding out investors.

To support rather than impede the price discovery process the AOFM will form its own views regarding the price(s) at which it is prepared to commit ABSF investment.

ABSF underwrite commitments will be disclosed no later than at the time indications of interest are sought by the issuer’s lead managers. Final pricing will need to be disclosed on all investment grade tranches in transactions for which the ABSF’s support is requested. Following pricing, the AOFM will disclose the amount invested by the ABSF in each tranche.

The AOFM will welcome feedback from market participants, in particular other investors, following each ABSF-underwritten transaction.

Instructions on making a submission for ABSF investment can be found here. Proponents are encouraged to contact the AOFM at absf@aofm.gov.au to arrange a call to discuss a proposal before submitting it, for both private and public transactions.