SFSF invests $2.7bn in June quarter

The SFSF was announced by the federal government in March as a $15-billion investment fund that aimed to support and enable smaller lenders to continue lending to small businesses and individual customers throughout the COVID-19 pandemic.

The AOFM was provided with the funds to invest in structured finance markets often used by smaller lenders that provide consumer and business finance.

The AOFM’s first investment was a purchase of $189.14 million across six tranches of the Firstmac Series 1-2020 Transaction.

The AOFM recently approved a maximum investment of $90 million into a Prospa Group Ltd warehouse trust through the SFSF.

There were three main work streams for the provision of SFSF support:

• Public (primary and secondary markets);
• Private (warehouse) markets; and
• Forbearance (the establishment of arrangements to enable small lenders to provide forbearance for borrowers experiencing COVID-19-related hardship).

Public markets

Ten public securitisation market transactions were priced over the period from late March to 30 June, with nine transactions supported by the SFSF. The proponent of one relatively small refinancing transaction did not seek support.

The level of SFSF support averaged just under 20 per cent, with a range of 9.5 per cent to 42.3 per cent.

“For each dollar of SFSF support, just over $4 of private sector capital was invested. The ratio of secondary market ‘switches’ to direct primary transaction support to date is about 2:1,” the AOFM said.

The quarterly update said that secondary market activity has been focused on “switch” transactions where the AOFM has invested in existing securities to facilitate the recycling of capital into new issuance.

The majority of this capital has supported primary market transactions, while a small amount of “less than $10 million” was directed into warehouse transactions.

Private markets

According to the AOFM, over 100 expressions of interest in the SFSF have been received from smaller lenders, with the majority seeking investment in warehouse facilities.

As at 30 June, SFSF commitments of just over $1.5 billion have supported 24 individual warehouses, sponsored by 18 borrowers. This did not include one warehouse proposal, which was withdrawn by the applicant after approval.

The total capacity of warehouse for which support has been provided is $12.4 billion, with the SFSF share of this capacity around 12 per cent. This suggests that for every dollar invested, about $7 of private sector capital has been retained in the facilities.

“This relatively high multiple has been driven by a deliberate skew towards investment in mezzanine tranches, where the market dislocation has been assessed as greatest,” the AOFM said.

Forbearance trust

The AOFM also revealed in its update that is has worked with the securitisation industry represented by the Australian Securitisation Fund (ASF) to establish a special purpose vehicle that will support the capacity of small lenders to make forbearance provisions for borrowers facing hardship due to COVID-19.

The AOFM has released a notice regarding proposals for access to the forbearance special purpose vehicle (fSPV).

The AOFM said it expects that the fSPV will be able to on-board participants during this month. The AOFM will use the SFSF to invest in the senior ranking securities issued by the fSPV.

BNY Mellon has been appointed as trustee, trust manager and security trustee for the fSPV, while the collateral verification agent will be Deloitte Touche Tohmatsu.

Eticore and Clayton Utz have acted as advisers to the AOFM to support its work on the fSPV.

[Related: ACCC expands SFSF administration]