German mortgage bank Rheinische Hypothekenbank (Rheinhyp) recently launched the first multi-jurisdiction pan-European securitization of commercial mortgages. The E1.381 billion ($1.34 million) synthetic securitization deal, called Europa One, was split into nine tranches and was arranged by Barclays Capital and Rheinhyp's parent company, Commerzbank Group.

Moody's Investor Service and Standard & Poor's gave triple-A ratings to the three A class tranches. The 1.3 year average life E290 million A' tranche priced at 20 basis points over three month Euribor. The spread on the E400 million A2 notes, average life 4.1 years, was 30 over three-month Euribor, and the 6.6-year A3 notes, also for a value of E400 million, priced at 35 over.

Pricing for the four other floating rate tranches, with ratings ranging from AA/Aa1 to BBB/Bbb, went from 40 basis points over three month Euribor on the E30 million M' tranche to 140 basis points over for the E57 million D' tranche. Two other subordinate tranches, one of which was rated triple B, with a combined value of E50.5 million, were not priced and act as extra credit enhancement for the deal.

In order to lessen the legal issues involved in the multi-jurisdictional nature of the deal, it is structured using a credit default swap, with the payment on the notes linked to the reference pool of mortgages (located in Spain, Germany, Austria, the Netherlands and France). The triple-A and double-A notes are collateralized by Rheinhyp's own ffentliche pfandbriefe, with the lower notes collateralized by Rheinhyp's unsecured notes.

A structuring official at Barclays Capital explained that the next step is a traditional sequential pass-though structure. "We went for this route to give sufficient support to the triple A tranches," he said. "Having that many tranches also enabled us to market it to different types of investors."

The official said it had, along with representatives of Rheinhyp, undertaken a "careful marketing" strategy, which included three weeks of roadshows in several European capitals.

He added that the deal had sold to investors in the targeted countries, namely Germany, Austria, Italy, France, U.K. and the Benelux countries. Most of the tranches were oversubscribed and placed with banks, pension funds, asset funds and money managers.

The official described himself "happy" with the final spreads and was quick to attribute this to the originator and the underlying assets - 75 mortgages for 99 commercial properties. "Rheinhyp's loss rates have to be seen be believed," he said. "And the quality of the underlying pool is excellent, with a loan-to value ratio of 67%."

"We and Rheinhyp will use Europa One as a platform and will certainly look to do more of these trades in future."

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