Accord Mortgages, a subsidiary of  Yorkshire Building Society, plans to securitize a £1.3 billion ($2.09B) portfolio of U.K. residential mortgages.

The Royal Bank of Scotland has been mandated to lead the deal.

Brass No.4 has been assigned preliminary ratings by Moody’s Investors Service, The trust will offer one tranche of ‘Aaa’ rated notes and a of subordinate notes that will not be rated by Moody’s.

The size of the senior tranche is yet to be determined but according to market reports its will be placed with investors.

The deal resembles prior tranasctions issued from the Brass trust. However Moody’s highlighted one key difference: there is no hedge for the interest rate mismatch between the adjustable-rate mortgages used as collateral and the fixed-rate notes to be issued by the trust. At closing, only 0.6% of the pool will be exposed to “spread compression risk” however this increases to over 70% after three years.

“The transaction is exposed to the risk of interest rate rises for SVR loans as payments made by the borrowers on these loans only change annually, and so there is a risk of interest shortfalls if floating interest rates increase,” Moody’s stated in its presale report.

The total credit enhancement for the senior notes is expected to be 12.20%. Most loans in the pool were originated after the credit crisis under stronger underwriting criteria. In particular, borrowers in the pool have significant amounts of equity in their property; the pool contains no loans with a current loan-to-value ratio of over 90%.


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