EXPLANATORY NOTES


EXPLANATORY NOTES

Introduction

1 The securitisation process is a means of creating a liquid market for assets, such as mortgages and credit card loans, which are illiquid. In addition, the process can be used to improve the liquidity of assets such as bonds.

2 In its simplest form, a securitisation program can operate in the following way:

• The manager of the program arranges for the creation of a special purpose vehicle (SPV) which is usually a trust.
• The manager then arranges for the SPV to buy a specific pool of assets from a financial enterprise or arranges the creation of assets through credit assessment and loan approval processes by agents (called originators). The assets are usually reasonably homogeneous (eg. good quality, fixed term, fixed rate mortgages) which should provide a steady income stream.
• The SPV finances the initial purchase of assets by using a line of credit (sometimes from a parent or associated company). The SPV then issues debt securities which can be short or long term in nature. Money raised from the issue is used to repay any line of credit and to purchase more assets to securitise. The investors receive the income and repayment of principal from the asset (via the SPV) over the lifetime of the securities. To ensure maximum marketability for the issue, managers usually arrange enhancement facilities (e.g. guaranteed credit lines, asset insurance, etc.) and have the issue rated by at least one of the major rating agencies.
• The manager can arrange for the SPV to issue securities, provided there is a specific and separate pool of assets backing each issue.

3 For the purpose of these statistics, securitisers are those legal entities which issue short or long term debt securities, or both, using specifically selected assets to back them and generate the payment streams necessary to fulfil interest and principal requirements of investors.

4 A securitisation program must have:

• A specifically created SPV - usually a trust - which is resident in Australia and which is not required to provide data to the Australian Prudential Regulation Authority (APRA) under the Financial Statistics (Collection of Data) Act.
• Specifically selected assets (e.g. mortgages, receivables, etc) backing its liabilities in the form of debt securities. In the case of mortgages, these may be on the balance sheet of the SPV or that of the originator. If the latter, the SPV will have a lien over them.

Classification

5 Australian securitisers are classified to the Financial Intermediaries n.e.c. subsection of the Financial Accounts (cat. no. 5232.0). The securities issued - asset backed securities - are classified as either Short term debt securities (subcategory one name paper) or Long term debt securities depending on their original term to maturity.


Scope

6 The scope of these statistics is all resident SPVs which securitise any type of asset (including mortgages, credit card receivables, lease receivables, short and long term debt securities) and which are not regulated or registered with APRA and therefore are not required to report to APRA under the Financial Statistics (Collection of Data) Act.


Coverage

7 Coverage is limited to those SPVs which are independently rated by a recognised rating agency.


Basis of valuation and consideration

8 Data are at face or nominal values. Any holdings of asset backed securities issued by other programs within the same group have been eliminated on consolidation from both assets and liabilities aggregates.


Definitions and descriptions of data items

Assets:

9 Cash & deposits refers to all types of deposits (including those denominated in foreign currency) with Australian banks and all non bank financial intermediaries such as merchant banks, finance companies and cash management trusts.

10 Holdings of short term securities refers to holdings of money market instruments. It includes securities such as certificates of deposit of Australian banks, bills of exchange and promissory notes.

11 Holdings of asset backed bonds refers to holdings of asset backed securities issued by securitisers outside the group.

12 Holdings of other long term securities refers to holdings of interest bearing securities, other than asset backed bonds, which have an original term to maturity greater than one year. It includes debentures, secured and unsecured notes and bonds.

13 Other loans & placements refers to all loans other than loans secured by mortgages and credit card loans. It includes operating lease and lease finance receivables and secured loans to originators.

14 Other assets refers to non financial assets and sundry financial claims.

Liabilities:

15 Asset backed securities issued in Australia, short term refers to asset backed securities which have an original term to maturity of one year or less.

16 Asset backed securities issued in Australia, long term refers to asset backed securities which have an original term to maturity of more than one year.

17 Loans and placements refers to loans and advances from Australian banks, non bank financial intermediaries (eg. money market corporations), and from other sources such as related companies.

18 Other liabilities, resident refers to other sundry amounts payable.

19 Other liabilities, non resident refers mainly to repatriated loans from offshore entities.


Related publications

20 Users may also wish to refer to the following publications which can be downloaded free of charge from the ABS web site:

• Australian National Accounts, Financial Accounts (cat. no. 5232.0) --- issued quarterly.
• Managed Funds: Australia (cat. no. 5655.0) --- issued quarterly.