Blackstone, Prudential Prep £12B in UK Buy-to-Let RMBS

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Blackstone and Prudential are marketing two offerings of mortgage bonds backed by over £12 billion in UK “buy-to-let” loans that were auctioned off last month by the British government.

All of the loans were originated by the former Bradford & Bingley bank and its Mortgage Express subsidiary, according to rating agency presale reports. Most were previously used as collateral for mortgage bonds issued via B&B’s Aire Valley Mortgage securitization trust.

B&B was nationalized by the UK government following its collapse in 2008.

According to the Financial Times, the Prudential and Blackstone paid a combined £11.8 billion for the loans, representing  the bulk of the £18 billion that the U.K. government has received in B&B asset sales. These sales have recovered 67% of the funds used to rescue B&B.

The largest pool, of £9.97 billion in loans made to single-family landlords between 2000 and 2007, was purchased by Blacktone, the U.S. private equity giant.  It is being used as collateral for a deal dubbed Ripon Mortgages.

Prudential acquired loans with a balance of £1.95 billion that are being used as collateral for Harben Finance 2017-1.

Moody’s Investors Service, Fitch Ratings and S&P Global all expect to assign triple-A ratings to the senior tranche to be issued in each deal. While these tranches have yet to be sized, they will account for 77.5% of their respective deal structures, according to presale reports. In both cases, the senior notes are supported by 22.5% subordination and total credit enhancement of 24.6%. The high levels of CE mitigate the expected low level of excess spread on the transaction, according to Moody’s, Fitch and S&P.

A large majority of the loans pay only interest, and no principal for part of their terms. The average APR is just 2.01%. The loans were sold by the UK Asset Resolution Ltd., which was formed to manage and sell off assets from B&B and Northern Rock, which also was nationalized during the crisis.

None of the loans included in either transaction are in arrears, according to rating agency presale reports.

Prudential and Blackstone are selling the loans into the respective trusts; long-term loan servicing rights will be transferred long-term to Topaz Finance Ltd., a subsidiary of Australian global financial firm Computershare.

Citigroup, Merrill Lynch, Goldman Sachs and Pierce, Fenner Smith are serving as joint lead managers on the transaction.

Goldman is also co-sponsor of the Ripon transaction and will serve as the risk-retention holder on that deal.

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