Germany's Landesbank Schleswig-Holstein (LB Kiel) recently made its first venture into the securitization market with a synthetic residential mortgage backed deal, the first such deal from a German Landesbank. The transaction - called FOERDE 2000-1 - totals $1.007 billion ($910 million), made up of a E888 million credit default swap and bonds worth E119.2 million.

German bank WestLB acted as lead manager on the deal, confirming the emergence of German arrangers and issuers as leaders in innovative synthetic securitizations, which offer them the chance to free-up regulatory capital and improve return on equity.

The bonds are chopped into four main tranches, with the E60 million 10-year average life A-class notes - rated AAA by Standard & Poor's and Fitch IBCA - collateralized by floating-rate pfandbriefe notes issued by WestLB. The pfandbriefe, also rated triple-A, match the payment and interest structure of the A tranche.

Credit enhancement of 5.85% for the A class notes is provided by subordination of the other tranches. These are a E35.6 million B tranche - rated A by both agencies and with a 14-year average life - a BBB-rated C chunk, worth E9.2 million and with a 14-year average life, and unrated D notes worth E14.3 million.

The bonds bear the initial risk of losses on the reference pool, before the credit default swap comes into play, and are notable for the longer-than-normal maturities, even for MBS issues.

The capital relief provided by the deal is 80% for the credit default swap, 90% for the A notes (as they are collateralized by third-party pfandbriefe) and 100% for the other notes.

Due to it being LB Kiel's first ever issue and because of the relatively long maturities, pricing was on the generous side. The A notes priced at 40 basis points over three-month Euribor, the B notes at 92 basis points over and the spread on the C class notes was 215 over. Pricing was not disclosed on the unrated D tranche.

Due to the synthetic structure of the deal the issue was launched by LB Kiel itself and not via an SPV. The bank will also act as servicer for the transaction and has assigned Deloitte & Touche in Germany in the role of trustee.

The underlying reference pool for the deal is provided by nearly 9,500 mortgages originated by LB Kiel, about 15% of its total portfolio. These mortgage loans, over 75% of which are located in northern Germany, have a book value of just over E1 billion and loan-to-value ratio of 79%. They are made up of around 58% first lien mortgages and 42% second lien.

Unsurprisingly, given the investor driven focus of the transaction, the deal was fully subscribed at launch, with the take-up very much dominated by German investors with knowledge of LB Kiel's activities.

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