Updated ABSF Advice – Public Term Transactions

The AOFM, through the ABSF, aims to enhance the development of the securitisation market’s capacity to support both private and public transactions backed by loans to SMEs. To date the ABSF has made investments in four private warehouse facilities and one public term transaction. The AOFM wishes to provide an update to its 9 September 2022 publication, which advised of its intent to use the ABSF to support the development of the market for public term securitisation transactions backed by SME lending by reducing execution risk.

The 9 September 2022 publication included the following, “An important consideration will be whether pools to support proposed transactions comprise loans predominantly from underdeveloped segments of the SME lending market”.  The AOFM, following a careful review of public term transactions since the 9 September 2022 publication and noting the market development objectives of the ABSF, has modified its position on pool composition.

Specifically, recognising that ABS backed by SME loans typically have a non-trivial minority of underdeveloped collateral types, the AOFM will no longer require collateral pools supporting public transactions to comprise a majority of loans secured by underdeveloped collateral types in order to qualify for ABSF investment.

The AOFM will no longer apply a minimum threshold on the proportion of underdeveloped collateral types in a pool in determining a transaction’s eligibility for ABSF investment. It will, however, seek to apply stretch goals with regards to the proportion of underdeveloped collateral types, on a case-by-case basis. In doing so, the AOFM expects that the proportion of these loans commonly seen in public term transactions will increase over time.

All other aspects of the update provided on 9 September 2022, including but not limited to the commitments required of proponents, AOFM’s approach to pricing, the book build process and disclosure are unchanged.

Instructions on making a submission for ABSF investment can be found here. Proponents are encouraged to contact the AOFM at absf@aofm.gov.au to arrange a call to discuss a proposal before submitting it, for both private and public transactions.