NZF’s liquidity risk on mend with RMBS issues
The collapse of some big finance companies recently has been an eye-opener for NZF Group which is now seeking to further reduce its reliance on debenture funding in favour of funding sources like Residential Mortgage Backed Securities.
Tuesday, October 5th 2010, 7:22AM
by Sophia Rodrigues
Such a source will not only provide the group with a cheaper source of funding, but moderate the asset-liability mismatches on its books by aligning the maturity profile of the funding with the company's loans.
NZF recently raised $100 million via RMBS issue, earning the distinction of being the first financial institution making the issue since the global financial crisis. The company is now in the process of making another such issue but wouldn't indicate how soon that would be.
NZF used proceeds from the RMBS issue to repay the amount drawn against the term loan facility with Westpac and the balance now stands at around $106 million from $194 million back in March. Westpac has retained the total facility at $225 million and extended the term to October next year.
Meanwhile, NZF has also reduced its reliance on debentures with such funding making up only 15.3% of the group's borrowing from around 22% in March.
As of March, the mismatch in NZF's asset-liability profile was stark with loans over five year-term as per contractual maturity comprising of 62% of total loans taken on an undiscounted cash flow basis. On the other hand, only about 18% are due within one year.
On the funding side, nearly 95% of the funding was due within a year, including the entire term loan facility from Westpac, $20 million of secured notes that are due in February and a majority of debentures.
The RMBS issue would have alleviated this mismatch to some extent and with more such issues planned a further easing in the liquidity risk on the books may be on the cards.
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