First time issuer Anglo Irish Bank recently came to market with a successful GBP375 million ($531.4 million) commercial mortgage-backed securitization. Called Monument Securitisation No.1, the deal was backed by a pool of 130 mortgage loans on 337 properties from the bank's U.K. portfolio. Merrill Lynch acted as arranger and lead manager.
Just over half of the properties in the underlying pool are located in London and the South East of England, but there is fairly even distribution in England, Scotland and Wales for the remainder. The average loan to value of the loans is 71%, which is the same figure as the number of floating rate loans in the pool.
The deal was split into four floating-rate soft-bullet tranches. The senior GBP297.2 million notes - rated Aaa by Moody's Investors Service and AAA by Fitch - carry 3.2-year average lives and pay a coupon of 37 basis points over three-month Libor.
The other three tranches all have 4.85-year average lives. The GBP44 million B tranche was rated A2 and A with a spread of 90 over, the GBP24.4 million C notes have a coupon of 185 over and were rated Baa2 and BBB-plus, and the spread on the GBP9.4 million D tranche - rated Ba2 and BB-plus - is 300 over.
Credit enhancement of 23.5% for the A notes comes through subordination on the B (11.75%), C (6.5%) and D notes (2.75%) as well as a 2.75% first loss fund that will be financed by the proceeds of an additional GBP10.3 million E tranche, which is not rated by the agencies.
The A tranche was privately placed and the other tranches were oversubscribed at launch. John Rowan, managing director of Anglo Irish's U.K. operations was delighted. "The issue was heavily oversubscribed and we were very pleased with how the pricing turned out," he said. "It was certainly at the lower end of our initial scale of expectations and we're happy at the high demand for the deal because that obviously affects pricing. It compares favorably with other CMBS deals that have come out."
Rowan believes that securitization offers obvious benefits to the company. "It's really to do with capital efficiency from our point of view," he explained. "Obviously, there are funding benefits to be gained, but the real pull was to make our capital work harder. We have quite a sophisticated capital-raising program at the bank: we have our core equity, we've issued preference shares twice, but this is just another weapon in our armory."
Rowan is also confident that the bank will do more deals in the future. "Based on the success of this issue, we believe we will become a regular issuer of securitized product," he said. "There is healthy demand out there and we see it being part of an ongoing capital program within the bank. If we do repeat, we may look to do that out of our U.K. portfolio or we may look to do it from our Irish loan book which would make it the first CMBS to come out of Ireland."