The U.K.'s largest independent pub company, Punch Group, last week launched the biggest ever securitization of pub receivables. The GBP1.5 billion deal ($2.25 billion) - called Punch Funding II - is also a benchmark deal in that it is one of the first pub securitizations to be backed by the income of both managed and leased pubs.

Salomon Smith Barney arranged the deal and acted as bookrunner, alongside Goldman Sachs and the Royal Bank of Scotland. AMBAC Assurance wrapped the senior tranches.

The income from almost 3,000 pubs - primarily coming from rent, beer and food sales - is included in the underlying portfolio. The pubs are mainly located in England and in February the valuation of the estate was around GBP1.9 billion.

Credit enhancement, in addition to the monoline wrap, comes in the form of a GBP250 million liquidity facility and a GBP26 million cash reserve, which could increase to GBP75 million through excess cash flows.

The transaction was split into four floating rate tranches and two fixed rate tranches. Standard & Poor's gave AAA ratings to the GBP350 million floating A1 notes and the A2 GBP300 million fixed-rate tranche.

The GBP450 million M floating rate received an A rating, and S&P rated both the GBP115 million floating rate N1 notes and the GBP200 million N2 fixed rate note BBB. The agency also gave a BB rating to the junior GBP85 million O floating rate tranche.

The 4.4-year average life A1 notes priced at 35 basis points over three-month Libor, while the A2 notes have an average life of 15.6 years and pay a 6.82% annual coupon.

The spread on the five-year M notes was 110 over, the pricing for the five-year N1 notes was 265 over and the coupon for the 27.7-year N2 notes 8.374%. The spread on the junior O notes was 575 over three-month Libor.

Andrew Allen, vice president of asset backed securities at Salomon, said that the transaction was well received. "The deal went extremely well," he said. "All the fixed rate sterling went into fixed rate sterling accounts and the floating notes went to banks and funds, here in London and on the continent."

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