In what has been a quiet couple of weeks in the European securitization market, the only deal of note other than Landesbank Schleswig-Holstein synthetic transaction was the Bank of Scotland's residential mortgage deal (ASRI, 4/27/2000). Salomon Smith Barney acted as lead manager on the GBP750 million ($1.2 billion) transaction - Mound Financing No.1 - which was backed by over 23,000 U.K. mortgages originated by BoS, worth over GBP1.7 billion.

The deal was the first U.K. RMBS to employ a master trust structure, something more normally associated with U.S. credit card deals. The structure allows the bank to add mortgages to the pot, subject to approval from the rating agencies, and for it to issue more deals backed by the same trust in the future, reducing the cost of each deal. It also means that the bonds issued from the trust can boast maturities shorter than the lives of the mortgages in the pool.

The deal was split into six floating rate tranches, three of which were denominated in dollars and three in sterling, in order to diversify the bank's source of funds. The A1 $208 million notes, rated Aaa/AAA by both Moody's Investors Service and Standard & Poor's, have 2.8 year average lives and priced at 17 basis points over three-month Libor.

Pricing for the $200 million 4.8-year average life A2 tranche - also rated triple A - was 21 basis points over three-month Libor. The spread on the triple-A rated $200 million A3 tranche, this time with a 6.8-year average life, was 24 basis points over three-month Libor.

In addition to the three dollar-denominated A-class tranches, a GBP285 million A-4 tranche was structured into the deal. It has a 6.8-year average life, triple-A ratings and priced at 29 basis points over.

Protection for the A-notes is principally provided by two subordinated tranches. The 6.8-year average life GBP37.5 million B-tranche - rated A1 by Moody's and A-plus by S&P - priced at 80 basis points over. The spread on the GBP37.5 million C notes, rated Baa2/BBB, was 160 basis points over.

Salomon Smith Barney was happy with the way the deal went and with its distribution. "All the A-class tranches and the B-notes were oversubscribed," a syndicate official said. "The sterling notes sold into Europe as we expected, and there was 50/50 distribution between the U.S. and Europe for the dollar notes."

The official believes that due to the success of this deal, other mortgage lenders will wish to utilize the master trust structure used in the Mound transaction (Abbey National is rumored to be one). "Using a master structure helps to cut the costs of arranging deals," he said. "Without wishing to generalize, I think other mortgage lenders with securitization intentions will evaluate this deal and see it as an attractive option."

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