Dansmall companies like MME dont have the cash to have a loan...

Dan
small companies like MME dont have the cash to have a loan book of 1.2bn (in fact even the big banks don't have enough to do the mortgage lending they do....but they have some funds from deposits etc, but even the big banks do debt issuances mainly overseas, but totally diff cost given the type of loans).

MME have these warehouse facilities which they have agreed with investors to provide with a range of conditions (type of loans - secured/unsecured, credit quality, hom much loss MME will take upfront, term, interest rate etc). MME manages the entire process incl taking a decent share of defaults & earn a margin above what they agreed.

What they have recently done is taken a bunch of loans from these warehouse facilities & packaged it up to 'sell' to interested investors again with them carrying a decent share of defaults.

the benefit is that it likely frees up some capacity in the warehouse facilities (or there is a chance these were going to mature so they had to do something), but it also demonstrates that they are potentially broadening the base of people who trust MME to write loans that are not going to default (which means they can grow that loan book).

the challenge still remains that accounting policy still dictates that you have to provision (through the profit & loss) upfront for any loan you write today.....so for every $100 loan they need to provision say $8....& then over the term of that loan perhaps the actual loss is only $5 so they report a gain of $3 over the term. This has not been an issue over the last 18mths as the loan book has been flat, but if they grow that $200m a year (or more), then accounting policy dictates this loss upfront (this was why their statutory p&l was in huge loss but they were in cash profit). So growth will be a little constrained as they don't want to spook the market.

anyway, positive that the market is starting to recognise the discipline & that investors are returning (& more potential investors looking for yield if rba drops rates)