Bank of America Merrill Lynch and StormHarbour Securities are marketing the second UK non-conforming RMBS of 2014 — Moorgate Funding 2014-1, according to a Standard & Poor’s pre-sale report.
The agency has assigned preliminary ratings to the deal. The capital structure will offer £338.16 million ($568.95 million) of AAA’-rated notes; £56 million of AA’-rated notes; £44.8 million of A’-rated notes; £18.36 million of BBB’-rated notes and £27.03 of BB’-rated notes.
At closing, Moorgate Funding 2014-1 will also issue £27.03 million of unrated principal residual certificates and revenue residual certificates. The notes are due in 2054 but are structured with an optional call date after month 60.
The deal is the second U.K. non-conforming RMBS to be issued this year, following UniCredit’s transaction, announced last week.
The pool in the latest deal is backed by first-lien, U.K. non-conforming residential mortgages owned by Kilimanjaro AM. The originators are Mortgages Plc (43.98%), Wave Lending (27.99%), Edeus Mortgage Creators (22.67%), Close Brothers (3.85%), and Paragon Mortgages (1.50%).
Mortgages Plc is the deal's servicer and Homeloan Management is the back-up servicer.
Over half of the borrowers in the loan pool have self-certified their incomes, according to the S&P presale report. Some 35.83% of the pool consists of buy-to-let properties and 12.15% of first-time buyers.
More than 66% of loans have an original LTV ratio of more than 80%. Loans with higher LTVs historically perform worse than other similar loans. S&P said that 7.37% of the loans are more than one-month delinquent. There are also loans (4.87% of the preliminary pool) that the arrangers have identified as having capitalized arrears.
S&P highlighted in the presale report that there is an interest rate risk mismatch between the underlying loans and the certificates offered under the capital structure. Of the underlying loans, 92% are linked to the Bank of England Base Rate (BBR) and 6% pay the standard variable rate (SVR); however, the class A1 to E1 notes' interest rate is equal to one-month sterling LIBOR.
There is also a basis mismatch risk because the LIBOR reset date on the notes differs from that on the loans. The S&P chart below lists the initial credit enhancement on the notes.