Irish mortgage lender First Active returned to the market recently, with the third issue from the First Flexible vehicle. The GBP500 million ($721.9 million) transaction securitizes a portfolio of flexible mortgages originated by the company. Flexible mortgages allow borrowers to redraw amounts on the loan that have been paid in excess of scheduled payments.

J.P. Morgan, as with the first two First Flexible deals, acted as lead manager, with Barclays Capital, Nomura and Merrill Lynch brought in as lead manager for the triple-A rated notes.

The underlying portfolio consists of over 6,500 loans - 51% of which are located in London and the South East of England - worth almost GBP436 million. The weighted average loan-to-value is 64.3%, very low for a typical MBS portfolio, with an average seasoning of 8.3 months.

An initial credit enhancement of 10.35% for the A notes comes from subordination on the B notes, a 2.35% cash reserve and from any excess spread accrued.

First Flexible No.3 was split into two floating-rate tranches. The GBP460 million A-class notes, rated triple-A by both Moody's Investors Service and Standard & Poor's, carry 5.2-year average lives and priced at 28 basis points over one month Libor. The GBP40 million B tranche, rated A1 by Moody's and A by S&P, is a seven-year soft bullet carrying a spread of 85 over.

There is a step-up on the coupon for both tranches after October 2007. At that point, the A-notes will carry a spread of 56 over and the B-notes will pay 170 over.

Pricing for the A notes compared favorably with the triple-A rated notes on the two previous issues in the series which came in at 31 over one month Libor (No.1) and 29 over (No.2). That reflects well on the characteristics of the underlying pool as well as investors becoming increasingly comfortable with First Active's status as a repeat issuer.

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