GMAC-RFC Netherlands has initiated activity in the region, issuing its first Dutch RMBS transaction last week.
The EURO350 million ($346.3 million) transaction debuts the securitization team, which set up office in the region two years ago. Sources familiar with the deal said the market should expect to see a succession of similar transactions to follow. "GMAC plans on being a repeat issuer, and securitization will be a major source of funding in this market - we expect to see them in the market at least two times a year," said a spokesperson at Schroder Salomon Smith Barney, the sole book runner on the deal.
The deal is being marketed in four rated classes of notes: The class A are triple-A rated by Moody's, Fitch and Standard & Poor's; the Class B notes are rated single-A by the rating agencies; the Class C notes are split-rated triple-B plus by S&P and triple-B by Moody's and Fitch; and the Class D notes are split-rated as well with a triple-B from S&P and double-B by Moody's and Fitch.
The triple-A notes carry an expected 4.5-year average life; the other tranches have an average life of 7.1-years.
The market has to date moved ahead with only Fitch and Moody's; this is the first time S&P has assigned a rating to a Dutch RMBS. Up until now, the agency's analysts could not get comfortable with the set-off risk that could potentially occur with the insolvency of an insurance policy provider.
According to S&P, this risk of borrower set-off exists in many Dutch residential mortgage securitizations. In the GMAC-RFC Netherlands transaction, however, there are more than 20 insurance policy providers with the maximum exposure amounting to 10% of the notes. In the past S&P has not rated any transaction where this risk exists, but given the diversity of the policies in this transaction, there is significant credit enhancement that adequately covers the risk of borrower set-off.
"The way S&P got comfortable with the deal is that GMAC as an institution does not provide the policies - this separation between lender and insurance company helps to reduce the set-off risks," said the source. "What helped them further is that there are 20 different insurance policies."
According to a source familiar with the situation, the deal was structured under U.S. accounting guidelines, which inherently require a put option. Dutch RMBS deals are typically set up with call options, however a put option is a benefit to investors, says the source, because it allows them ultimate control. And unlike vanilla Dutch RMBS structures, the GMAC-RFC Netherlands deal will use EURO46.6 million ($46 million) of the note issuance proceeds to purchase pre-funded loans from the originator within the first three months after closing.
Sources said the deal was pre-marketed during the Barcelona conference and is expected to close in early July. GMAC-RFC has been actively growing its securitization business throughout Europe and is an established lender in the U.K. Unlike their U.K. focus, however, the Netherlands office will concentrate only on prime mortgage lending.
