While there is still a degree of uncertainty as to what the final proposal for the new Basel Accord will look like, some issuers - rather than stepping on the sidelines until those changes are made apparent - are instead opting to retain a measure of flexibility via an optional redemption step-up date.

Case in point: Halifax's first master trust structure, which issued a GBP23 billion RMBS transaction - to date the largest seen in the European securitization market. "Like other issuers, Halifax will review the situation and will determine if securitization makes sense from a diversification of funding point of view," said one market source. "The point is, Halifax has done a master trust before, and that means that they intend to issue more going forward; otherwise, what is the point of doing a master trust?"

The transaction features a five-year expected maturity that, according to the market source, is clearly implemented to ensure that, on the Basel side, they can get out if they have too. The transaction has a step-up date in 2007 similar to the step-up date featured in Northern Rock's 2002-1 deal.

In the Northern Rock 2002-1 prospectus, it states that the issuer may - by giving not less than 30 and not more than 60 days prior notice to the note trustee and the note holders - redeem, below the principal amount outstanding, all (but not some) of the notes specified, together with any accrued interest on the following dates:

The payment date falling on April 2007 and on any payment date thereafter. This gives the issuer the option to redeem the notes after the April 2007 step-up date for interest.

Any payment date on which the aggregate principal amount of the notes outstanding is less than 10% of the aggregate principal amount of the notes outstanding as of the closing date.

Permanent Financing No.1 Plc will total GBP3.2 billion (U.S.$4.7 billion), and is co-managed by Schroder Salomon Smith Barney and JPMorgan. The deal is structured into four series of notes, comprising thirteen tranches. Series 1 and Series 2 are each worth U.S.$802 million, and Series 3 is worth U.S.$1.07 billion.

Series 1, 2 and 3 have three tranches, and series 4 has four tranches. Class A of series 1 is a short-dated Rule 2a7 tranche, rated P1/A+/F1+, targeted at U.S. money market funds. U.K. issuers Abbey National and Northern Rock have also included such tranches in their issues. Series 4 class A1 is EURO750million (U.S.$702.2 million), A2 is GBP750 million (U.S.$1.1 billion), and B and C are both worth GBP44 million (U.S.$64.4 million).

Most of the notes have a final legal maturity of June 2042. However, series 1 class A has a final legal maturity in June 2003, series 2 and series 3 class A have final maturities in June and December 2007, respectively, and series 4 class A1 has a final maturity in June 2009.

All the notes are floating rate except one of the U.S.$750million notes, as well as the EURO750million notes. Fixed-rate, Euro-denominated RMBS is quite rare.

"One of the more interesting features of this deal is the relatively small Euro-denominated component," commented a trader at Dresdner Kleinwort Wasserstein. "I am actually surprised that they did not do a floating-rate tranche; the only explanation I can give is that they are seeking the most aggressive pricing."

Issuance of prime U.K. RMBS is expected to pick up over the next several months following the Halifax deal, and established issuers who have been absent so far this year are expected to return to market. "We believe that current spread levels on global RMBS transactions offer one of the best values in the entire ABS market," said Edward Reardon at JPMorgan.

According to a JPMorgan report on the U.K. RMBS sector, over U.S.$16billion worth of transactions backed by U.K. mortgages have been sold to international investors since the market's inception in 2000. For 2002, JPMorgan expects that U.K. global RMBS could reach over U.S.$10 billion.

"While U.K. RMBS includes amortizing structures, the bullet repayment profile has attracted a wide group of global investors that do not normally participate in pass-through or amortizing structures," reported JPMorgan. "In addition, money market 2a7 tranches enable short-term money market investors to participate as well."

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