Structured Finance Issue: Zip’s A$500m buy-now, pay-later securitisation

IFR Asia Awards 2019
3 min read
John Weavers

Zip, zip hooray

Australian financial technology company Zip broke new ground in 2019 with the world’s first master trust securitisation backed by buy-now, pay-later (BNPL) receivables.

A multi-year effort by sole lead manager National Australia Bank culminated in August’s enlarged A$500m (US$340m) offering of asset-backed securities, Zip Master Trust Series 2019-1, which refinances the funding of existing receivables within Zip’s portfolio.

“This transaction is another important milestone for Zip and fintech more broadly,” said Zip COO and co-founder Peter Gray. “The Zip Master Trust is the perfect structure to support Zip’s funding requirement as we continue to scale, and it will deliver material cost benefits in the medium to long term.”

NAB had to make sure investors were comfortable with both the new asset class and the originator, a six-year-old digital payments group that is on a mission to disrupt the global credit card industry but has yet to turn a profit.

Price discovery was complicated, given the lack of comparable issues, and the roadshow was extended to allow for 32 individual investor meetings. The buyside clearly liked what they heard, as 27 investors participated in the deal, almost all of them real money accounts.

High final cover ratios between 1.8 and 8.2 times, including 2.3 times for the senior notes, ensured a strong result and the deal was upsized from A$400m.

The A$260m Class A1 notes priced at the tight end of one-month BBSW plus 180bp–200bp guidance, despite Moody’s placing a ratings cap of A1 on the top tranche to reflect the limited performance history of the company.

The A$105m Class A2, A$50m Class B, A$15m Class C and A$20m Class D notes matched respective guidance of one-month BBSW plus 240bp, 365bp, 540bp and 790bp.

The A$25m Class E notes came at the tight end of one-month BBSW plus 950bp–1,000bp price talk while the A$25m Class F notes were retained.

All the notes have 2.0-year soft bullet maturities with the Class A1s to Es having respective credit support of 48%, 27%, 17%, 14%, 10% and 5%, with high levels of subordination in the senior tranches giving investors comfort.

Master trusts are a good fit for securitisations of assets like BNPLs that are revolving in nature. Master trusts also tend to have soft bullet maturities rather than weighted-average lives, allowing the originator to target a broader range of domestic and foreign investors.

Besides Zip, the only other public master-trust issuer in Australia is Latitude Finance, which sells ABS backed by credit card receivables.

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