Peverel Properties, the U.K. sheltered housing builders, recently launched a GBP103 million ($164 million) securitization, backed by property ground rents on Peverel's portfolio of 25,000 sheltered housing flats and 12,600 ordinary properties. The deal - called Peverel Properties - was arranged by Merrill Lynch and is believed to be the first ground rent deal issued from the U.K.

The transaction was split into two tranches: a GBP100 million senior tranche rated AAA by both Standard & Poor's and Duff & Phelps Credit Rating Co., and GBP3 million of B class notes rated BBB by the agencies. The 29.4-year average life senior notes priced at 180 basis points over the 2028 Gilt, while the spread on B notes was 300 over.

Apart from the senior/subordinated structure, the only credit enhancement for the deal was a GBP1.7 million cash reserve, but the deal is considered to carry little risk as Peverel has never had any defaults on ground rents - which makes up 82% of its income.

A syndicate official at Merrill Lynch described himself pleased with the way the deal went. "Given the difficult market conditions, we are very happy that the deal is now fully subscribed and with the spreads," he said.

The official confirmed that the majority of the bonds were taken up by U.K. insurance companies, but added that there were a small number of notes bought by European investors.

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