Charter Court serves up £320M prime-only RMBS

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Charter Court Financial Services, which does business as Precise Mortgages, marketing its first offering of bonds backed exclusively by prime UK mortgages, according to presale reports.

Charter Mortgage Funding 2017-1 PLC is provisionaly backed by al pool of £320 million (US$412.35 million) conforming, owner-occupied loans.

The deal was arranged by Lloyds Bank, and includes five classes of notes. The final tranche sizes are to be determined, but more than 87% of the final notes issuance size will be from the Class A tranche, which benefits from 12.65% credit enhancement. The senior notes carry preliminary triple-A ratings from both Moody’s Investors Service and S&P Global Ratings.

The Class A, B, C and D notes all have a legal maturity of 2054, and pay floating rates of interest pegged to three-month Libor. An unrated subordinate tranche of Class Z bonds pay a fixed 8%, but pays out only after principal and interest is distributed to the other classes, as well as reserve and swap payments.

Charter, which only became a deposit institution in March 2015, has completed eight prior securitizations, but those deals involved non-prime or non-conforming borrowers, or delved into investor-owned “buy-to-let” houses.

The new portfolio consists of loans to 1,856 prime U.K. borrowers with an average loan balance of £172,400. The loans were originated between August 2014 and May 2017.
The buyers include first-time homeowners (30.42% of the pool) and 21.7% involve equity cash-out refinancing.

Although only seasoned on average 10.3 months, the weighted average current indexed loan-to-value ratio is 69.13% (no individual loan has an LTV above 90%), which compares favorably to other UK RMBS prime deals, according to Moody’s.

None of the loans are in arrears, but more than 94% of the loans in the pool could be reset at at higher rates in the future, presenting higher risk of default.

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