Valtion Asuntorahasto, otherwise known as the Housing Fund of Finland, recently returned to a relatively quiet European market with the fifth and biggest-yet deal from its Fennica vehicle. The EURO800 million ($680.2 million) transaction is backed by a portfolio of loans for borrowers to construct accommodation for families that qualify for social housing.

Credit Suisse First Boston and BNP Paribas arranged the deal, and also acted as joint lead managers with Leonia Corporate Bank. ING Barings and Okobank were brought in as co-managers. The Finnish treasury will service the loans.

The underlying portfolio consists of around 1,100 loans with an outstanding balance of EURO900 million. The weighted average loan-to-value of the collateral is just over 78%.

The transaction was split into two floating-rate tranches and one fixed-rate tranche. The EURO464.9 million A1 notes, rated triple-A by both Moody's Investors Service and Fitch, priced at 25 basis points over six month Euribor and have 5.1 year expected lives. The A2 tranche, also rated triple-A, has a 7.1 year expected maturity and pays a fixed coupon of 5.9%. The junior B tranche, rated A1 by Moody's and A-plus by Fitch, pays 65 over and also has a 7.1 year expected maturity.

The deal incorporates a step-up in coupon payments for the bonds beyond their expected maturity. After this point, the spread on the A1 and A2 notes will be 75 over and 175 over for the B notes.

Credit enhancement of 4.2% for the triple-A tranches will come from subordination on the B notes (3.2%) and a cash reserve fund (1%) that will come from a loan made by the Housing Fund of Finland to the SPV. -

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