Pepper launches mortgage offering in NZ

Non-bank lender Pepper Money has launched mortgage lending operations in New Zealand, offering advisers in New Zealand the technology and tools to write its prime, near-prime and specialist loans. Via The Adviser.

Following more than a year of consultation with advisers and intermediaries, lending partners, regulators and borrowers, Pepper Money has today (16 September) opened its business in New Zealand.

This builds on the international reach of the non-bank lending group, which already operates in Australia, the UK, Spain, Ireland and Asia.

New Zealand-born Aaron Milburn, Pepper Money’s director of sales and distribution in Australia, will head up the New Zealand business from today. His new job title will be director of sales and distribution for Australia and New Zealand.

Speaking to The Adviser about the new business, Mr Milburn said that Pepper Money will primarily distribute through the third-party channel, as it does in Australia.

Mr Milburn added that while while the company may look to launch mortgages directly in future, “the initial plan – and for the foreseeable future – is to utilise the adviser network over there”.

He explained: “We will initially distribute through the adviser network in NZ through all of the major aggregators that operate in New Zealand. 

“Pepper’s business is 95 per cent driven through brokers in Australia and in the UK, and we see no need to change that model as we enter NZ.”

He continued: “We think that advisers do a wonderful job in New Zealand, and we would like to continue to support that area of distribution as we enter NZ, as we do in Australia.”

Mr Milburn told The Adviser that his first priority in his expanded role will be to launch the suite of products in New Zealand and “deliver what advisers have been asking for at our various feedback sessions and study tours”.

According to the director of sales and distribution for Australia and New Zealand, this largely focuses around filling a “significant gap in the near-prime space in New Zealand, where families are potentially paying too much or have been in the wrong products due to a lack of choice” and providing advisers with supporting tools to help deliver these products.

He explained: “We had advisers in New Zealand contacting Pepper asking us to go over there and really inject some competition into the market and make it easier for advisers and, ultimately, Kiwi families to realise their goals.”

Pepper Money will therefore also offer advisers the Pepper Product Selector (PPS) tool in New Zealand, which will enable brokers to “get indicative offers for their customers in under two minutes”, as well as a “fully online integrated submission platform for brokers,” the marketing toolkit, the social media toolkit and the Pepper Insights Roadshow.

Pepper Money to pay trail

Notably, while the majority of lenders in New Zealand went through a “no trail” period starting in 2006 (when payments went from 0.65 of a percentage point in upfront commission plus 0.20 of a percentage point in trail commission to an average of 0.85 of a percentage point in upfront only), several lenders have begun returning to trail commission to reduce instances of churn.

According to Mr Milburn, Pepper Money in New Zealand will be offering advisers an upfront and trail commission.

He told The Adviser: “Overwhelmingly, the feedback was that an upfront and trail model was preferred. 

“A number of banks have either re-implemented trail in NZ or are looking to in the near future, so we took the opportunity to put trail back into the New Zealand market with our products.”

Mr Milburn concluded that the new operation in New Zealand would build on the practice and service offerings built in Australia.

He said: “We will continue to deliver the level of service and solutions that we do today and continue to really focus on that technology improvement side of things. 

“We want to make it easier and faster for brokers to provide solutions for their customers and help build their brand out in the community and the focus will continue in the back end of 2019 to 2020.”

Pepper’s near prime settlements grow by more than 50%

Amidst the tighter lending conditions that have beset much of the mainstream banking industry, Pepper Money says it’s having its best year yet across its entire product suite, particularly in the near prime space, via MPA.

Since pioneering and launching the near prime segment in 2012, Pepper Money has experienced an average growth rate of 30% per year in near prime settlements and has served over 11,600 customers equating to more than $5bn-worth of loan settlements.

“To put the $5bn worth of near prime settlements into context, 56%, or $2.6bn, has been originated in the last 18 months,” Pepper Money CEO Australia Mario Rehayem said. “Near prime is finally getting the recognition it deserves.”

According to Rehayem, many near prime customers would have been financed willingly by a bank 12 months ago. These customers could be people who have a number of credit cards that they’re finding difficult to repay; people who participate in the gig economy; people who don’t hold full-time employment or maintain supplementary income; or people who have overcome a credit debt and want to move forward.

In an interview with MPA, Pepper Money director of sales Aaron Milburn said that interest from brokers working with near-prime borrowers continues to grow as traditional lenders tighten their lending criteria in all aspects of prime lending.

“It helps to think of the near prime category as an elastic band that expands and contracts depending on internal and external factors,” he said. “A bank’s changing risk appetite or an industry-wide regulatory change are good examples of these factors.”

How brokers can deal with near prime

The application process for a full-doc near prime loan is no different to a full-doc prime loan, according to Milburn. The challenge is managing their customer’s expectations.

Some customers may experience a sense of disappointment because they didn’t expect to be declined by a bank, so brokers need to be sensitive to those feelings, Milburn said.

Pepper Money has a five-step process that outlines how brokers can approach these situations and explain that they have an alternative solution that will still meet their client’s need.

For just the month of August, Pepper Money is offering a 50% discount on its mortgage risk fee– its equivalent of LMI— to celebrate its milestone in the near prime segment.

“It represents significant savings for those underserved families trying to refinance or get into the market at a time when the mainstream lenders are tightening their lending criteria more than ever before,” Milburn said.

This article was written in partnership with Pepper Money.

Pepper Group Grabs $1 Billion In RMBS Issue

Pepper, a major alternative lender has priced its largest ever securitisation deal amid strong investor interest. As we highlighted recently there has been a surge in securitised deals as pricing have sharpened, with a 13% rise, mainly driven by home loans. Most issuance is in Australia, as opposed to offshore investors.

Pepper Group has priced its first ever $1 billion RMBS issue, Pepper Residential Securities Trust No 20 (PRS20). PRS20 attracted the strongest ever over-subscription, exceeding $2 billion demonstrating extremely strong and diverse investor interest.

Commenting on this significant achievement for Pepper, Mario Rehayem CEO Australia said “As our first billion dollar securitisation, this is a real milestone for everyone at Pepper. This transaction is a strong endorsement of Pepper’s business, its loan quality and expertise as a lender to the many customers who are underserved by the banks.”

The transaction’s funding strategy resulted in an efficient overall cost of funds for the transaction. Pricing was competitive in a market experiencing increasing global volatility. All Australian tranches priced at or inside the equivalent PRS 19 tranches from October 2018. The senior USD 150 million AAA rated 1 year bullet note priced at 1m US Libor plus 50bps and the senior AUD 205 million and AUD 300 million AAA rated pass through notes priced at 1m BBSW plus 65bps and 1m BBSW plus 120bps respectively. The AUD 130m AAA rated Class A2 notes and AUD 85m AA rated class B notes priced at 1m BBSW plus 155bps and 190bps respectively. Senior tranches were structured in a manner that met identified demand from global investors by issuing dual short duration tranches denominated in US and Australian Dollars.

Commenting on the pleasing outcome, Pepper Group’s Australian Treasurer, Matthew O’Hare, said “The efforts we have made to broaden our investor base has paid off with new investors across every tranche and an ever increasing offshore investor presence evident in this transaction. Importantly, we have attracted a significant number of new “real money” investors further diversifying our investor base. We are truly delighted with the support shown by our many valued Australian and offshore clients and with the addition of 4 new investors to our program.”

Pepper Group was assisted in this transaction by National Australia Bank (Arranger) and nabSecurities LLC and Citigroup Global Markets Inc (Joint Lead Managers) and Commonwealth Bank of Australia and Westpac Banking Corporation (Co-Managers) on the US notes and Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation (Joint Lead Managers) on the AUD notes.

Since inception, Pepper has issued over AUD$11.6 billion of RMBS across 26 non-conforming and prime RMBS issues, making it one of the most experienced and regular issuers in the market.

Pepper Takeover Approved

From Australian Broker.

The shareholders of Pepper Group have overwhelmingly approved the scheme implementation deed for Red Hot Australia Bidco, an entity owned by certain funds, clients or accounts managed or advised by KKR Credit Advisors or its affiliates, for Bidco to acquire all of the Pepper shares.

Approximately 99.96% of voting shareholders voted in favour of the transaction at a special shareholder meeting today.

As a result of the positive vote, Pepper shareholders not electing one of the Election Options in the scheme will receive $3.60 in cash per share and a special dividend of 10 cents a share.

The Scheme also included an equity alternative to the Cash Consideration (Scrip Option) allowing shareholders (other than certain foreign ineligible shareholders) to instead receive one share in Red Hot Australia Holdco, which is the owner of 100% of the shares in Bidco, for each Pepper share they hold.

Pepper Group chairman, Seumas Dawes said “We are pleased with the strong vote in favour of the scheme, which directors believe delivers maximum value for shareholders. In addition, we are delighted that many shareholders chose to remain invested in the Pepper business.”

Commenting on what the transaction means for the Pepper Group Business, group CEO Mike Culhane said, “With the support of KKR, we now have the opportunity to accelerate our long term growth plans around the world. KKR’s investment is a strong endorsement of the outlook for our business. We are confident this partnership will position the company for long-term success.”

The scheme will be formally implemented on 4 December when shareholders will receive the cash consideration for their shares or an allocation of shares in Holdco.

Pepper Originated $2.6bn in Australian Mortgages

Pepper Group released their 2016 annual report which shows double digit profit growth in 2016 to $61.0m, up 26% from $48.6m in 2015. The global consumer lending and mortgage servicing approach reach $52.4bn, comprising $7.0 bn in lending assets (up 14% from 2015)  and $45.4bn in funds serviced for other institutions (up 25% from 2015).

In 2017 they are forecasting adjusted NPAT to be at least $67.5m (excluding performance fees).

Following a spate of acquisitions, they say the consumer lending businesses in UK, Ireland, Spain and Asia are building scale.  They say the profitability of the Australian and Asian businesses are “lending-led”, whilst those in Europe are “Servicing-led”.

They say” we often lend when banks won’t, and we can do this because we have developed proprietary credit processes and have adopted a risk based pricing methodology though getting to know customers’ individual circumstances intimately”.

In Australia, total mortgage originations were up 36% to $2.5bn, and asset finance originations  up 69% to $673m. Brokers using Pepper have grown from 600 in 2012 to over 2,630 in 2016. 72% of the portfolio is owner occupied with an average LVR of 71%. 90% of the portfolio is residential housing.

They completed 2 non-conforming RMBS transactions totalling $1.5bn in addition to $1.0 billion in whole loan sales