Lloyds Banking Group released initial details of its RMBS offering from it Permanent master trust. The deal signals a possible reopening of the European RMBS market.
“This is the first public deal in U.K. prime RMBS since two small deals last year from Fosse 2008-1 in August 2008 and Permm 2008-2 in May,” Barclays Capital analysts said. “These deals did not open the primary issuance market in the U.K. as many had hoped, and much will depend on the final pricing structure for the offered tranches in this transaction to see if the market will follow the same route or actually be the re-thawing of a primary market vital for funding options for banks.”
According to market reports, the PERMM 2009-1 issuance is made up of three tranches: the first is an A-1 tranche, sized at £1.565 billion ($2.4 billion) that is likely retained; the second A-2 tranche is unknown in final size, but £1.25 billion has been pre-placed with JPMorgan; and the third tranche will be a euro denominated note and will be publicaly marketed, hence there is no initial indication of size.
Each tranche is structured as a soft bullet, and the mortgages backing the notes have a total portfolio balance of £43.24 billion, with a weighted average indexed LTV of 67.83% and weighted average seasoning of 47 months.
Pricing for the remaining amount of the A-2 and the A-3 tranches will take place later this week, market sources said.
The initial details do not mention any government guarantees. Instead, all classes of Permm 2009-1 will benefit from a maturity purchase agreement and are structured with a five-year weighted average life with expected maturity in October 2014. The structuring, said analysts, implies a put option back to the issuer that would solve one of the key concerns for investors of extension risk and low prepayment rates.
“If there is no government guarantee as we suspect from the announcement, this will have certainly helped the economics of the transaction, and the use of a put option will make it attractive for investors,” explained Barclays’ analysts.
ABS primary also in gear for reopening
Volkswagen Leasing GmbH’s €475 million German auto lease transaction, VCL 11 is expected to close at the end of the week.
The VCL 11 deal announced two weeks ago by Volkswagen will be the first European ABS deal in the consumer ABS space of any size to be publicly placed in more than a year. The deal has raised hopes that it could mark the reopening of the ABS market, said market analysts.