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Securitisation investment funds
Australian Business Securitisation Fund (ABSF)
The ABSF is a $2 billion investment fund that was established in April 2019. It is backed by a policy aim to enhance access to finance for SMEs through targeted investments in the securitisation market. Investments from the ABSF will allow for smaller lenders to compete more effectively with the major banks, and to fill niche gaps in the lending market that are otherwise underserved in Australia. A considerable amount of work was undertaken by the AOFM throughout the first half of 2019-20 to establish arrangements (including legal and specialist technical advice) to support the assessment of proposals for investment by the Fund. This also included detailed liaison with the industry to better understand how the ABSF could be used to develop the market and the development of a set of principles to guide such development. The AOFM also published a market development strategy so that the industry would be clear as to how the AOFM’s approach to implementing the program would link to the underlying policy aim.
At present, the Australian SME securitisation market is constrained by a lack of borrowing and lending ‘scale’. Potential investors are reluctant (and in some cases unwilling) to conduct the due diligence needed to enter the market where only low volume issuance is concerned. The aim is to use the ABSF to invest in SME loan securitisations that will help to establish a track record in lending against types of collateral that are new to the securitisation market, and where the ability to obtain credit ratings and attract broad investor interest is currently very limited.
Structured Finance Support Fund (SFSF)
The SFSF provides for up to $15 billion for investments to ensure continued access to funding markets by SME lenders impacted by the economic effects of the COVID-19 pandemic. In particular, the policy aim is to compensate for where smaller lenders lose access to reasonably priced funding from markets during the period of pandemic disruption. The program was established very quickly with the primary aim being to complement the support offered through a range of measures announced by the Government and the RBA during the initial stages of the pandemic impact.
The AOFM devised three key elements to the SFSF implementation strategy:
supporting new issuance of public securitisations sponsored by smaller lenders;
investing in revolving warehouse facilities of small lenders (to counter the withdrawal of investors from existing facilities and support the call on lenders for credit enhancements); and
establishing a ‘forbearance trust’ whereby SFSF investments would provide cash flow support to eligible small lenders against loans experiencing temporary COVID-19 related hardship.
Taken together, by 30 June 2020 the AOFM had invested or committed $2.7 billion of SFSF funds that have either catalysed or maintained private sector investment of $18 billion since the onset of the impacts of the pandemic. This provided support for 21 business and consumer lenders (one ADI and 20 Non-ADIs).