Thinktank Celebrates $ 500 Million RMBS Deal
When Thinktank, a lender specializing in commercial and residential real estate, recently closed its first residential mortgage-backed securitization (RMBS) issue for $ 500 million, it validated a strategy to diversify from small commercial loans to the market. residential debt market.
In a COVID-19 environment, this diversification enabled the company to withstand the economic impact of the pandemic, as in the 12 months leading up to June 30, 2021, it settled for the first time more than ‘$ 1 billion in loans, an increase of 33% over the previous year and a significant milestone.
In 2006, when Thinktank first opened, residential debt was not on the radar. Instead, small business loans of up to $ 3 million (although most transactions were much smaller) for the self-employed, professionals, and small and medium-sized employers (SMEs) were the focus. attention. The founding executives believed there was a niche here for a conservative lender who understood this market better than the big banks and could offer better lending products and faster turnaround times.
So it’s proven. When Thinktank closed its sixth and largest commercial mortgage-backed securitization (CMBS) transaction of $ 600 million in October last year, total rated bonds issued reached $ 2 billion. As with other issues, it met strong institutional demand in domestic (77%) and foreign (23%) markets and confirmed the company’s reputation as a leading capital markets issuer in the commercial real estate asset class.
But it’s evident that these independents, professionals and SMEs also want home financing, and Thinktank, through its network of trusted mortgage brokers and aggregators, is well positioned to provide this as an adjacent product. In 2018, residential loans continued to grow to represent between 10 and 15% of the portfolio.
However, COVID has seen that percentage of loans reach around 50% today. Two factors played a role. Trade finance activity declined. A pandemic that naturally shook business confidence and shrank the economy inevitably meant slowing demand for commercial loans. Across the market as a whole, commercial lending activity initially fell by around 40-50%, and support for distressed borrowers increased.
But to the surprise of the market, and, to be honest, to Thinktank’s first surprise, residential lending quickly picked up, so much so that calls were made for regulatory intervention to alleviate the market where the risks were the highest are perceived. The fact that the company financed over $ 1 billion in loans in fiscal 2021 can be largely attributed to a combined increase in residential and SMSF loans, more than offsetting the temporary decline in commercial loans.
Although the commercial real estate market has generally recovered well from the initial shock of COVID-19 (retail remains a weak spot while some individual market segments such as industrial have remained strong throughout) , it is always behind on the demand for residential financing.
It was in this environment that Thinktank launched its first RMBS in August 2021, with the final ratings given by Standard and Poor’s and Fitch Ratings being AAA (sf) for the $ 400 million class A1 notes and class A2 notes. $ 50 million, while the 16 million Class B notes, the $ 9 million Class C notes, the $ 6.5 million Class D notes, the 3 , A $ 5 million and the A $ 2.5 million Class F notes were rated AA (sf), A (sf), BBB (sf), BB (sf) and B (sf), respectively.
The price has been fully disclosed, with Class A1 notes set at a margin of 0.90% above the 30-day banknote exchange rate. Margins above the 30-day banknote exchange rate for the remaining notes ranged from 1.05% for class A2 to 6.3% for class F. The bonds were placed with 21 investors. institutions, 83% of which were based in the country and 17% abroad. Real money investors accounted for 57% of the total amount issued while banks accounted for 43%.
Institutional support for the company’s first RMBS issue has been strong, with the deal starting at $ 400 million but reaching $ 500 million due to strong demand.
This reflects the continued strength and stable performance of the Australian securitization market. The nature of the losses observed overseas as a result of the GFC simply did not occur in Australia. For Thinktank’s part, investors have not suffered any losses on its six CMBS transactions over $ 2 billion issued to date.
Thinktank is planning two or three new securitization deals in 2022, potentially two residential and one commercial, each of which is expected to be larger than previous deals. Thinktank is confident in the underlying and continued strong institutional demand for upcoming issuance, further strengthening its reputation in an ever growing and important market that is a critical part of the credit offering to Australian businesses and consumers who, in turn, offers product diversification and adds significantly to competition with the country’s major banks.
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