Charter Court serves up £320M prime-only RMBS
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.