Australian securitisation broke records in 2021, with A$47.3 billion (US$33.9 billion) raised in 66 deals, an improvement on 2017’s A$46.6 billion (see chart). New entrants from the nonbank sector were notable in the flow of issuance, as a growing group of new names reached the stage of business development where public term funding became relevant.
Moody’s Analytics says new entrants are prime candidates for a platform such as ABS Suite Plus, which automates and streamlines onerous investor and regulatory reporting. Issuers and trustees use the software platform for the administration of securitisation programmes, supporting diverse underlying assets that can range from credit cards, mortgages and consumer loans to auto loans, leases and mobile-device payment plans.
“The solution is designed fully to automate and provide infrastructure for a structured-finance issuance programme, be it securitisation, covered bond or any type of asset or mortgage-backed securities,” says Marc Levine, managing director, issuer solutions at Moody’s in Boston.
“When an issuer comes to market, it is faced with all sorts of challenges regarding daily and monthly reporting requirements. Our system takes data from the issuer’s source systems, automates all the calculations required at the loan level, then aggregates it.”
In addition, all the logic related to the deal’s capital structure lies within ABS Suite Plus, as well as functionality that allows for an optimised selection of assets for inclusion in securitisations or warehouses, while automating reporting, accounting and cash flows. “In Australia, RBA [Reserve Bank of Australia] reporting can also be automated through the platform and payment instructions produced,” Levine adds.
More than 150 issuers and trustees globally take advantage of the Moody’s offering, making it the most widely used structured-finance platform in the world. In 2021 alone, Moody’s implemented a record number of new clients as organisations further recognised the importance and value of the functionality as well as the unique expertise, investment, commitment and experience it offers.
According to Moody’s, platform users have noted an 80 percent efficiency gain and significant reduction in keystroke error. “When firms generate these critical reports, there are sometimes no controls and no reviewer who understands all the complex calculations going on in the spreadsheet,” Levine explains.
“This is a huge key person and control risk, particularly considering the size of many of these transactions. Our system solves these challenges and does so in a way that provides a significant improvement on the time and effort it takes to generate the reports, accounting entries and other downstream obligations.”
Without the system, Levine continues, the whole process tends to be manual – people pulling data off servicing systems, entering it into spreadsheets and calculating offline. A typical month could include multiple days with multiple people working on reporting. The Moody’s platform takes the entire manual process and fully automates it, Levine says.
Marc Levine, Moody's Analtyics
Six debut issuers tapped the Australian market in 2021, with deals totalling A$1.6 billion. All came from the nonbank sector. Securitisation has historically been the primary means of funding for these issuers as structured finance gives them access to institutional debt finance at a price that typically helps them compete with authorised deposit-taking institutions (ADIs).
Levine says the time it takes to set up a new deal is an important consideration for issuers and trustees focused on efficiency. “Without the right system, setting up new deals can be extremely arduous. But if a tool has the right features issuers can leverage existing deals and reduce operational overhead while having all the necessary controls in place,” he adds.
Enhancements to the platform have also made selecting assets from warehouses and adding them to term deals simpler, optimising the funding process.
Levine comments: “We have integrated a mixed-integer solver, making it easier for clients with warehouses to take loans out and put them into a securitisation. It is a complicated process with a lot of moving parts as issuers are trying to select a pool of assets for a term deal, which has a set of eligibility and compliance rules, while at the same time keeping their warehouses in compliance with covenants. ABS Suite Plus can do it in a single automated process.”
To accomplish this, a series of optimisation routines – which consider all eligibility and compliance rules of the term deal and warehouses – are run against the assets to help select an optimal collateral pool for the securitisation and what to leave in the warehouse.
Australian mortgages do not necessarily behave like those found in other parts of the world. For instance, split home loans that divide the mortgage into fixed- and variable-interest payments are not typically available in markets like the US. The RBA also demands slightly different data points for regulatory reporting than global counterparts.
Moody’s has spent years enhancing its offering to cater to local markets. But the configurable nature of its platform made this an easier task, according to Levine.
He comments: “The way our platform is built, and the level of investment we have made, makes it capable of handling complex structures – including, but certainly not limited to, revolvers and master trusts. This is something difficult for a system without years of development and significant investment to do.
“In fact, over the past three-plus decades, we have built and modernised an unmatched set of configurable functionality and we are able to leverage it in Australia and the rest of the world,” Levine continues. “The flexibility to handle any complexity a deal may contain, either on the collateral or structure side, is the single most important thing to consider when investing in a system.”
He suggests the true value of ABS Suite Plus lies in its ability to offer flexible setup: in fact, all its core capabilities are available to configure. If a user has a different product type or structure, the system can be configured based on the bespoke nature of the deal and issuer.
Levine adds ABS Suite Plus is capable of tracking different data elements and can process multiple inputs from multiple systems. “Our system handles so many complexities but the biggest one is the ability to manage all the possible permutations of how a capital structure or waterfall works. When building a modelling tool, unless you have tested the system on all sorts of different structures across multiple different asset classes – with different credit support and credit enhancement types – you really do not know until you get into the details of the specific deal that you have a system that can handle it.”
Levine says, with ABS Suite Plus, Moody’s is not customising but rather configuring what is already there for the client – or the user can do it themselves.
Moody’s purchased ABS Suite from Deloitte in late 2019, and has been improving the platform and combining it with features from its other legacy platforms ever since. It is also exploring ways to leverage and integrate other analytical capabilities, such as credit models, that exist across the firm.
Moody’s considers the platform as part of a larger structured-finance ecosystem. It is building tools that can connect it to other platforms it offers to warehouse lenders, investors and others with a vision of interoperability and connectivity that it believes will further enhance its value.
Levine comments: “In addition to our ABS Suite Plus platform, we also have a system that captures data on securitisations across the world. Furthermore, we have clients providing warehouse lending that are using another one of our applications, and we are focused on providing interoperability and connectivity between the different platforms.”
For example, in the future users will be able to generate reports out of the platform and make the data available to lenders and investors immediately. “We are also working on other types of cashflow analytics within the platform that will incorporate credit models,” Levine adds. “When this is in place, rather than a user inputting assumptions, it will leverage the credit models that include much broader and more sophisticated capabilities.”
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