Leeds Tests Investors Interest with U.K. RMBS
Leeds Building Society plans to issue the next investor-placed U.K. RMBS; but issuance in this once dominant sector of European securitizations continues to fall below recent years as banks find cheaper funding with the Bank of England’s funding for lending scheme.
The deal—Albion No. 2—offers a 3.1-yr senior tranche to investors, backed by a £500 million ($766 million) pool of U.K. prime residential owner-occupied mortgages.
The Leeds deal will offer investors a single tranche of triple-A rated, class A notes with 11% credit enhancement; a second tranche of class Z notes that have not been rated will be retained by the bank.
Fitch Ratings and Moody’s Investors Service assigned preliminary rating to the class A notes. JPMorgan, Barclays and HSBC are lead managers on the deal.
Standard & Poor’s said that year-to-date investor-placed U.K. RMBS issuance remains well below recent years at £2.3 billion.
The suppressed deal flow is attributed to the Bank of England’s FLS, which provides banks with cheap funds but in recent months the U.K. market has opened up to smaller issuers accessing the market.
FLS allows banks and building societies in the U.K. to use certain pools of loans as collateral against borrowing Treasurys from the BoE with a maturity of up to four years. Under the scheme, funding rates are lower, in most cases, than what the real market can offer. As a result, securitization issuance from banks has suffered, and it is expected to continue to suffer.
The scheme was extended by a year in March to end in January 2015.
Paul Riley, group treasurer at Leeds Building Society said last week at Information Management Network’s Global ABS event in Brussels, Belgium that U.K. , master trust issuers are staying out of the market not only because of the FLS but also because of a lack of lending, which reduces the need to issue securitization deals.
“With master trust issuers out of the market, it’s presenting an opportunity for second tier names like us to come to market in a much more efficient manner,” said Riley.