Mortgage Express, the wholly owned subsidiary of building society Bradford & Bingley, came to market recently with a GBP1 billion ($1.47 billion) mortgage securitization - the largest securitization of buy-to-let mortgages to come out of the U.K.

Lead managed by UBS Warburg and called Aire Valley Finance No. 2, the underlying pool is made up of more than 14,000 mortgages located in England and Wales, with a 69% concentration in London and southeast England. The outstanding balance of the loans was GBP1.05 billion at launch, with an average loan-to-value ratio of 72% and average seasoning of 15 months.

The transaction was split into three floating-rate tranches. The 5.1-year, GBP892.5 million Class A was priced at 32 basis points over three-month Libor and earned triple-A ratings from all three rating agencies. The GBP57.5 million B tranche, rated Aa3 by Moody's Investors Service and AA-minus by both Fitch IBCA and Standard & Poor's Ratings Services, priced at 55 over. The spread on a GBP50 million C class was 150 basis points, and earned a Baa2 rating from Moody's and BBB from S&P and Fitch.

Legal maturity for the notes is 2031 and the structure includes a step up after September 2008. Beyond this point, the coupon for the A-notes will be 80 over three-month Libor, 137.5 over for the B-notes and 250 over for the C-tranche.

Credit enhancement comes in the form of subordination on the B and C tranches and through a 2% reserve fund that could grow to 2.25% from any excess spread accrued.

Dan Cook, executive director of Warburg's syndicate desk in London, felt the deal had been a success given the nature of the asset class.

"The deal went extremely well," he said. "We obviously had a fairly extended marketing period given that the deal was 100% buy-to-let properties. That took a little more explaining than a regular owner-occupied deal, but we ended up getting a very diverse group of investors involved."

Cook said that buyers in the U.K. were banks, building societies, and fund managers, while in the rest of Europe investors included banks and fund managers, as well as some insurance companies. Between 50% and 60% sold to U.K. investors, he said.

The transaction proved to price wider than comparable securitizations because of the rarity of the asset class, Cook said.

"The pricing had to go a little bit wider than the typical owner occupied deal, which is understandable for what is a fairly new product for the market," he explained. "We were very careful to make sure that the pricing was at a level that did get the bonds sold. The idea was obviously to do a large deal, to make it the benchmark in the market, and the only way to do that is to have a deal that sells initially."

Tim Dawson, chief executive officer at Mortgage Express, was less happy with the spreads, but acknowledged that a tradeoff between pricing and selling the transaction was understandable.

"I suppose the straight answer is that you are never pleased with the pricing," he said. "The issue with this deal is that it really is a benchmark and because the market is still unfamiliar with buy-to-let deals, it was always going to be more expensive than a straightforward vanilla mortgage deal. That's the balance you have to make.

That said, Dawson noted that if the deal had "come in at 10 basis points or even two basis points lower we would have been a lot happier. But we expect whoever comes to market with the deal will find it easier to place and the spreads will probably be narrower, simply because we've set the market going on this."

Dawson added that an immediate return to market for the company was unlikely, but felt further deals were possible, depending on how the market goes, how much business the company was writing and what its funding requirements were.

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