SME lender Thinktank completed a A$600 million issue of commercial mortgage-backed securities last week, its sixth since it entered the market in 2014 and its biggest so far.
The securitisation market has seen a steady flow of deals over the past few months, including record issuances for a couple of lenders and some innovative deals. It looks like business as usual.
But Thinktank chief executive Jonathan Street thinks otherwise. “It is not a normal market. There are not as many active investors. Some funds are rebalancing and not looking to invest now. Others have had high levels of redemptions and they don’t have the cash.”
Street said pricing on Thinktank’s latest deal was about 30 basis points wider than the company’s 2019 issue. The AAA notes were priced at 160 bps over the bank bill swap rate.
“It is nothing like the period through the GFC. Things are working well but it is not optimal.”
Thinktank has originated around $2.8 billion of loans since it was launched in 2006 and currently has a book worth $1.8 billion.
It specialises in sub-$3 million commercial and residential mortgages targeting SMEs, self-employed and self-managed superannuation fund borrowers. It offers a mix of full-doc, mid-doc and low-doc loans.
The average loan balance is $615,000 and the weighted average loan-to-valuation ratio is 64.2 per cent.
It was set up by experienced bankers and has a risk-averse approach. Since it launched it has suffered loan losses of only around $2 million.
Last month the company reported that it had 13.7 per cent of the book (by loan amount) under COVID-19 hardship arrangements. Hardships peaked at 23.5 per cent in May
“We don’t have a single loan in the book where we think we will lose money but we do expect some losses over the next couple of years,” Street said.
In 2018 it launched two managed funds as an additional source of funding. These have been modestly successful, with a total of around $60 million of funds under management.
Also in 2018, AFG acquired a 30 per cent stake in Thinktank and launched white label version of its loan products for AFG brokers.
In the first year of the arrangement Thinktank sold $45 million of loans through AFG, rising to $155 million in 2019/20.
Street said the company tightened its lending standards at the onset of the pandemic but has returned to normal since then.