Eurohypo, the mortgage subsidiary of Deutsche Bank, last week closed a synthetic securitization of residential mortgages. Called Eurohypo 2000-1, the E500 million ($471 million) transaction is split into both floating rate and fixed rate Euro denominated tranches. Deutsche acted as arranger for the deal and brought in Barclays Capital, Hypovereinsbank and Lehman Brothers as co-managers for the class-A notes.

Due to the synthetic structure used, the credit linked notes assume the economic risks of the underlying portfolio - worth just over E500 million - directly from Eurohypo's balance sheet, rather than the assets being transferred into a special purpose vehicle. The underlying portfolio contains over 17,000 first and second tier mortgages originated by Eurohypo to German borrowers, with a loan to value ratio of about 70%.

Credit enhancement of 13.5% for the class A notes is provided by subordination of the junior tranches. The A notes are collateralized by floating rate public sector pfandbriefe notes issued by Eurohypo, whose interest payment dates and final maturity mirrors that of the A notes. In case of default, the pfandbriefe will be sold to redeem holders of the A bonds. The B and C tranches do without the collateralization.

The E432.5 million A notes - rated Aaa by Moody's Investors Service and AAA by Fitch and Standard & Poor's - have an average life of four years and priced at 32 basis points over three-month Euribor.

The 11.1-year average life B tranche was split into both floating and fixed notes, both of which received an A1 rating from Moody's, A from S&P and A-plus from Fitch. The spread on the floating rate E15 million B1 notes was 85 over Euribor, while the fixed rate E18.5 million B2 notes pay a coupon of 6.65%.

The 11.5-year C tranche - rated Baa1 by Moody's, BBB by S&P and BBB-plus by Fitch - was also divided into fixed and floating rate notes. The E5 million B1 notes priced at 150 over three-month Euribor and the E10.2 million B2 notes carry a 7.325% coupon. Eurohypo will hold the unrated E18.8 million D tranche as equity.

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