PSIS taps securitisation market for $100 Mln

PSIS taps securitisation market in road to banking and beyond

By Paul McBeth

Dec. 14 (BusinessDesk) – PSIS Ltd., the mutual that evolved out of the Public Service Investment Society, has tapped the securitisation market to bolster its funding profile and pave the way for a potential banking licence.

The mutual raised $100 million through a residential mortgage-backed securities issue as investors’ appetite for repackaged loan books returns. PSIS Treasurer Andrew Gray told BusinessDesk the five-year issue was a means to improve the financial entity’s liquidity as it seeks out a ‘BBB-’ investment grade credit rating that would ultimately let it apply for a banking licence.

“The programme is giving us additional liquidity and the five-year funding lengthens our maturity profile,” Gray said. “We’ve had a positive outlook, and the programme is consistent with getting an investment grade rating” that opens up the possibility of becoming a bank in the future, he said.

PSIS’s BB+ credit rating was put on a positive outlook by rating agency Standard & Poor’s in July due to the mutual’s “low-risk and sound credit profile.” Gray says that paves the way for the entity to eventually seek a banking licence if it wins a rating upgrade.

Gray said the securitisation programme would also cut PSIS’ cost of funding by about half a percent. The securities were sold at 150 basis points above one-month bank bills, and he expects their first interest rate reset will be to 4.7%.

The programme didn’t have to pay mortgage insurance and was granted a cover factor of 13%, as opposed to the usual 19%. The cover factor, known colloquially as a haircut, is the percentage discount applied to the value of a security to account for the risk of loss the investment faces.

Some $88.5 million of the programme was rated an AAA by S&P.

The securitisation programme is the second since NZF Group launched an RMBS in May. Mortgage-backed securities fell out of favour about three years ago, but has become a viable alternative for financial institutions to raise funds after the collapse of the finance sector made investors wary of giving their money to non-bank deposit takers.

(BusinessDesk)

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