Dutch investment bank ABN Amro will soon bring to market a deal backed by mortgages originated by its Hong Kong office. Called HK Synthetic MBS Co., the HK$1260.8 million ($161.65 million) transaction is structured as a synthetic collateralized loan obligation that is credit linked to the mortgages, whereby default risk is transferred from the bank's balance sheet to the special purpose vehicle.
The underlying portfolio is made up of almost 1200 first-tier residential mortgage loans with an outstanding balance equivalent to the value of the notes issued. The loans carry an average weighted loan-to-value of 59% with an average seasoning of 29 months. Geographically, the mortgages are concentrated mainly in the New Territories (60%), with the rest located in Hong Kong Island (21.4%) and Kowloon.
The transaction will be split into four publicly issued floating-rate tranches and HK$18.9 million of unrated class E bonds that will be held by ABN Amro. Fitch has provisionally given a AA rating to the senior HK$1124.6 million class A notes and an A rating to the HK$54.2 million of B paper. Additionally, the HK$44.2 million C tranche has been rated triple-B and the D tranche received a BB rating.
Aside from the E tranche, credit enhancement of 10.8% for the senior A paper will come from subordination on the B, C and D notes.