Sweden marked a first in its ABS history last week with a EURO1.6 billion synthetic mortgage-backed securitization, the first to be issued by the country.

Appropriately dubbed FARM Securitization Ltd, originated by ForeningSparbanken Jordbrukskredit, the partially funded synthetic will be issued in four tranches of floating-rate notes with an underlying super senior credit default swap. The tranches are distributed as follows: a EURO64 million class A, triple-A-rated piece; a EURO96 million class B, double-A-rated piece; a EURO24 million class C, single-A- rated tranche; and a EURO28 million triple-B-rated class D tranche. Credit Suisse First Boston is managing the deal.

"Not only is it the first synthetic we see emerge from that region, but it's also unusual collateral," said one analyst following the deal. To be sure, the reference pool is largely composed of assets from rural Sweden, which includes farms, forest and agriculture.

It's also the first securitization initiated by Jordbrukskredit, which is wholly owned by the double-A-minus rated Spintab, a subsidiary of ForeningsSparbanken AB. According to Moody's: "Jordbrukskredit and [the competition] Landshypotek are the only institutions in Sweden exclusively concentrating on this market sector. Together, they have the majority of the market."

FARM Securitization exists as a Jersey-based limited liability company where there is no true sale of assets to the issuer. The Class A and B notes have credit risks transferred to a two-tranched credit default swap.

The class C and D notes have its credit risk transferred through the purchase of credit linked notes from Spintab, which expose the notes to the rating of the parent company. "If losses occur in the reference portfolio, the principal balance of these credit-linked notes is written down by the relevant amount," explained analysts at Dresdner Kleinwort Wasserstein.

Because it is a synthetic structure, the loss calculation resulting from a borrower default does not include enforcement costs on repossession and unpaid interest during a loan's repossession period. Hence, it considerably reduces the enhancement required for the deal, making the transaction less vulnerable to the length of the repossession period, explains Moody's in its analysis of the deal.

It is expected to price wider than comparable Swedish MBS issues, said Dresdner, primarily due to its synthetic structure and the concentration of borrowers' assets and income deriving from the agriculture sector, paired with "investors' lack of familiarity with the issuer."

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