Chris Bajada and Rowan Trayler INTRODUCTION 1 The first major effect of the US subprime mortgage market was felt in Australia around August 2007 when the Australian mortgage lender RAMS announced that it was unable to sell $6 billion1 of its securitized debt in the global financial market. The RAMS financing model depended on selling home loans in Australia, securitizing these and then selling the securitized debt in international financial markets. Following this announcement, the RAMS share price fell $0.82c to $0.57c. The announcement had an immediate detrimental flow-on effect on the share prices of other financial institutions including the Macquarie, Adelaide and St George banks, as well as several other highly geared non-bank companies such as Centro Properties. One year later, in August 2008, the shares of Australia’s largest childcare provider ABC Learning Centres were put into a trading halt as it had failed to provide its annual results to the share market. There was speculation at the time that the company would be placed into liquidation as it was rumored that its auditor Ernst & Young wanted to review several of the previous year’s accounts. The market speculated that this would result in problems that would contravene ABC Learning’s bank loan covenants. ABC Learning had expanded rapidly in the previous years, borrowing almost $3.5 billion, of which $1.5 billon was due for repayment in two years. The state of the global debt markets was considered by the market to be a major obstacle for ABC Learning’s capacity to refinance...
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