European issuers managed to get deals priced last week in the face of growing uncertainty over Europe's sovereign debt crisis, but at a cost.
Paragon priced its return to the buy-to-let market transaction after an absence of more than four years.
The structural features and collateral characteristics of its return transaction are significantly different.
Compared with Paragon 15, the senior tranche of Paragon 16 — the first post-crisis U.K. buy-to-let transaction — benefits from higher credit enhancement (23% versus 17%). The latest offering also has a wider spread (275 basis points versus 13 basis points) and a "turbo" feature under which excess spread can be used to pay note principal in case the deal is not called on schedule, according to Standard & Poor's analysts. If not called in October 2014, excess spread would be used to pay down class A.
"Contrary to what was initially planned and mentioned by the company during the 2011 Global ABS Conference in Brussels, Paragon retained the mezzanine notes, which reflects, in our view, the worsening of the market environment over the summer," Barclays Capital analysts said in a report.
Paragon 16’s collateral also reflects more conservative post-crisis lending standards: the weighted average LTV ratio (70% versus 80%) and the proportion of mortgages that pay interest only for life (40% versus 96%) are both lower.
According to S&P, there has been a trend toward smaller deals, wider note margins and greater credit support in RMBS issuance since 2009.
Also pricing last week was Obvion's €700 million Dutch RMBS called Storm 2011-IV.
The €150 million two-year weighted average life (WAL) Class A1 notes priced at 120 basis points above three-month Euribor.
Meanwhile, the €550 million, 4.9 year WAL Class A2 was sold at a spread of 155 basis points at the wide end of price guidance.
"Compared with the last Storm issuance (2011-III) in April 2011, the execution was 25 basis points to 30 basis points wider, providing a data point by how much European RMBS from core jurisdictions and prime issuers suffered from a worse credit market environment since July 2011," Barclays analysts said.