J.P. Morgan & Co. is in the market with the first U.K. securitization of flexible mortgages, a product which allows borrowers to prepay their mortgages without penalty and redraw on the mortgages at a later date.

The GBP300 million ($485.9 million) transaction, called First Flexible, is also the first securitization of U.K. mortgages from the Irish bank First Active, a bank that has previously issued deals backed by its Irish mortgage portfolio in the Celtic series. It is split into a GBP276 million chunk rated triple-A by Standard and Poor's Ratings Group and Fitch IBCA and a single-A piece worth GBP24 million.

The flexibility of the mortgages means that the securitization has to be structured to cater for future - and unpredictable - redraws without affecting bondholders. To do this, though the bonds paydown like a normal passthrough deal, there is a redraw fund, backed up by a GBP45 million redraw facility.

While this may make the deal less efficient from First Active's point of view than a normal passthrough structure, as it has to fund the redraw fund and pay a commitment fee on the redraw facility, the deal gives the bank the traditional advantages of an MBS deal: moving the mortgages off balance sheet and releasing capital for further lending.

Investors will also benefit from low LTVs of 64% on a fully drawn basis.

At press time there was no official price talk, but market pros assumed that the deal would inevitably price on the basis of where the recent Abbey National and Northern Rock deals are trading, meaning a spread in the low thirties over Libor.

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