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New Zealand Finance Group concludes sale of residential mortgage-backed securities worth $100 million

The New Zealand Finance Group, NZF, a financial services firm, said on Tuesday that it had concluded the sale of residential mortgage-backed securities at an estimated $100 million. This sale is the first of its kind in New Zealand since the global financial meltdown, showing the regaining investor confidence in assets tied to home loans.


The NZF Mortgages Series 2010-1 Trust, planned and lead managed by Westpac, takes its place as the first residential mortgage backed securities in New Zealand since 2007. Depending on the class and risks of the notes issued, the companies pay a floating rate of interest pegged at a margin above the 90-day bank bill rate. Consequently, the trust’s work is to receive and pay out interest on money that NZF has borrowed as residential mortgage holders make interest and principal payments.


As such, NZF’s $87.8 million A1 class notes with an AAA rating by Standard and Poor’s, pays 175 basis points over the 90 day bank bill rate, whereas the $2.5 million B class notes with an AA rating pay a higher margin. In the case that the trust incurs a loss, the A1 notes normally receive payments before the B notes can. According to head of bonds and currencies at Tyndall Investment Management, a firm that has a management portfolio of $2.5 billion of bonds, investors only pick the exposure and risks parameters that they see fit for them after learning and comprehending risks.


The issue was however closed to the public with a minimum subscription of $500,000 and is expected to diversify NZF’s funding base. More over, it will also free about $100 million for future loan origination, said John Callaghan, its managing director.


The issued notes have a mortgage backing of 403 New Zealand properties, and an average loan of $286,000, with the loans having mortgage insurance with Genworth Financial Mortgage Insurance. With this first sale of securities in the country since 2007, it is hoped that it would help regain investor confidence, ever since the market slammed in 2007 due to notes backed by American subprime mortgages that led investors to avoid all but the securest of securities.


In 2009, upgrades to both the Australian and New Zealand structured finance bonds were higher in number against downgrades by more than three to one. This was as a result of home owners keeping up with payments on their loans, according to Fitch Ratings.


June 17, 2010.


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