Room to grow

If we can draw any lessons from Super September, it’s that mezz and senior tranches are in very different places right now. Senior placement must be approached cautiously, with some mix of partially retained tranches, preplacement, arranger support, or simply starting wide of the market. Mezz, however, can be a bunfight. Investors aren’t necessarily willing to chase bonds tighter, despite the huge oversubscription levels seen on some tranches — there’s a price and everyone’s keen at the price, but below a certain spread the demand will fall away.

Let’s zoom out a bit and consider the broad securitisation landscape. If you go look up securitisation in a textbook, it will tell you that a key advantage is that you can manufacture different tranches which are appealing to investors with different risk-return requirements.

That means you do actually need investors with different risk-return requirements out there in the market — and specifically, you need some very big tickets for senior bonds, which might be taking up 60-90% of the overall capital structure.