Citigroup subsidiary Dukinfield Mortgages, formerly known as Future Mortgages, plans to offer £485 million ($747 million) of securities backed by reperforming residential U.K. mortgages.
All of the originators of the loans used as collateral (Amber Homeloans Ltd., CitiFinancial Europe PLC, Future Mortgages Ltd., Rooftop Mortgages Ltd., and Southern Pacific Mortgage Ltd.) have stopped lending. Around 60.0% of loans have a clean history; a total of 9.32% are delinquent; 5.19% of them for less than 30 days and 2.63% for between 30 and 60 days.
The loans have an average loan-to-value ratio of 88%, a remaining term of 16.5 years and have paid an average of 8.10 years.
The bonds to be issued will pay an interest rate linked to three-month British pound sterling LIBOR, as do 98.6% of the variable rate mortgage loans used as collateral. However, the dates on which the rates for the bonds and loans reset will not be the same.
This results in a basis mismatch that will not be hedged, according to Moody's Investors Service.
"In addition, spread in the deal could further reduce should higher-yielding floating rate loans prepay at a faster pace than lower-yielding loans," the rating agency states in its presale report.
Moody’s and Standard & Poor’s assigned preliminary ‘Aaa’/ ‘AAA’ ratings to £326 million of series A notes that benefit from 31.5% credit enhancement; ‘Aa1’/ ‘AA’ ratings to £37.9 million of class B notes that benefit from 23.25% credit enhancement; ‘Aa3’/ ‘A’ ratings to £33.3 million of class C notes that benefit from credit enhancement of 16%; ‘A3’/ ‘BBB’ ratings to £16.1 million of class D notes that benefit from 12.5% credit enhancement; and ‘Ba1’/ ‘BB’ ratings to £25.3 million of class E notes that benefit from 7% credit enhancement.
There are also £20 million of subordinate class F notes that will not be rated.
All of the notes have afinal maturity date of August 2045.
The class B notes through class E notes are deferrable-interest notes, which means that the issuer can defer interest payments without triggering an event of default.
The Royal Bank of Scotland is lead manager. Pepper U.K. will be the mortgage servicer for all of the pool's loans.