ASF Update: Structured Finance Support Fund

The Australian Securitisation Forum (ASF) has welcomed the establishment by the Federal Government of the Structured Finance Support Facility (SFSF).  The Australian Office of Financial Management (AOFM) will manage the $15 billion fund. The SFSF has announced two investments to date, the first in Firstmac’s 2019-1 RMBS and the second in a Judo Bank warehouse facility.
 
The securitisation industry, working through the ASF, has been actively engaged over the last two weeks with the AOFM to explore options for the SFSF to invest in outstanding RMBS, ABS and warehouse facilities sponsored by non-ADIs to compensate for cashflows deferred as a result of COVID-19 hardship payment holidays being granted to borrowers. The discussions with the AOFM have been constructive and productive.  The ASF and AOFM are in general agreement that the SFSF can play a role in addressing this issue.
 
As the issue affects all issuers, the ASF is keen to identify an industry wide approach that can be put in place quickly.  Given that those discussions will involve lenders in the non-ADI sector who, in normal times, operate in a competitive market, we have applied to the ACCC for relief under the Consumer and Competition Act of 2010 and the discussions which have occurred to date are subject to the grant of that interim authorisation.  If granted, this relief will allow the ASF to put a formal and detailed proposal to the AOFM for their consideration. We expect a response to our application to the ACCC this week, by 9 April 2020.
 
The ASF and the industry is developing a structure that will enable the SFSF to invest in new senior ranking debt securities issued by a newly constituted “Forbearance” SPV.  That SPV which will then advance funds to eligible securitisation trusts and warehouses who wish to draw liquidity advances to compensate for the missed interest component of scheduled payments not received as a result of the borrower being granted a payment holiday or moratorium due to the impact of the COVID-19 pandemic.
 
The plan of the ASF is to appoint legal counsel to develop a detailed term sheet to describe how an industry wide “Forbearance” SPV can operate subject to the terms of the SFSF legislation and the operational guidelines of the SFSF.  Once established eligible issuers and lenders can be registered to access the “Forbearance” SPV.  It is expected that eligible participants will need to subscribe for junior notes in the “Forbearance” SPV in proportion to their participation and these notes will not cross collateralise the obligations of the other participants.
 
We expect that the “Forbearance” SPV will appoint an independent party to verify the transfer of eligible COVID-19 receivables to the SPV and reconcile drawdowns and repayments under the liquidity facility, amongst other things.