U.K. building society Abbey National recently closed the biggest ever European mortgage backed securitization. The GBP2.2 billion ($3.3 billion) deal - called Holmes Financing - is backed by a pool of 128,000 first-tier residential mortgages located in England and Wales with a value of almost GBP7.2 billion (ASRI 7/17/2000 p.8).
Schroder Salomon Smith Barney structured the deal and also acted as lead manager. Eleven other syndicate desks were brought in on Abbey's insistence, including Credit Suisse First Boston, Merrill Lynch, Deutsche Bank, J.P. Morgan and Warburg Dillon Read.
Credit enhancement for the transaction - which employs a mastertrust structure to enable multiple deals to be issued from the same vehicle - comes from subordination and a GBP6 million reserve account which could grow to GBP30 million from excess spread.
The deal was split into dollar, sterling and euro denominated notes in order to attract as many investors as possible. Particular attention was paid to the U.S. market with well over half the deal denominated in dollars.
The three-year soft bullet notes were split into three tranches. The $900 million triple-A rated A notes priced at 14 basis points over three-month Libor, the $31.5 million B notes - rated AA by Standard & Poor's and Fitch and Aa3 by Moody's Investors Service - priced at 38 over, and the spread on the C notes was 100 over.
The five-year soft bullet series was also split into three tranches with identical ratings to the three-year maturity notes. The senior A notes priced at 19 over three-month Libor, the B notes at 41 over and the C notes at 115 over.
Series three included GBP375 million of triple-A rated notes which carried a spread of 26 basis points over three-month Libor and E320 million of notes which also priced at 26 over. The triple A rated notes for the 10-year fixed rate sterling tranche carry an annual coupon of 6.62%.