U.K. building society Nationwide is marketing a securitization of residential mortgages to be issued from its Silverstone Master Trust.
This is Nationwide’s seventh securitization. The bank has securitized 19.75% of its portfolio totaling £24 billion ($36 billion) as of September 2014, according to Moody’s Investor Service.
The series 2015-1 notes have not been sized but according to Moody’s presale report, the notes will be entirely denominated in U.K. sterling. The last time the issuer came to market, in March 2012, the trust issued the majority of the notes in US dollars. In total $2 billion was sold and a smaller £200 million tranche was also offered.
Moody’s plans to assign Aaa’ ratings to the class 1A and class 2A senior notes on offer that have a final maturity of January 2075. A pool of loans underwritten to 184,332 prime U.K. borrowers backs the securitization. The loans, which have weighted average loan to value ratio of 58.6%, have on average a remaining term of 16 years and have on average paid off for 7.7 years.
Bank of America Merrill Lynch, Barclays, Citibank and Deutsche Bank are joint lead managers on the deal.
Moody’s stated in a report this week that the strong performance of U.K. RMBS trusts has been buoyed by the favorable economic conditions such as higher GDP growth and lower unemployment levels. The rating agency said it expects more of the same in 2015 with house price increases further boosting performance for the asset class.
According to Nationwide, U.K. property prices increased by 10.5% between the third quarter of 2013 and the third quarter of 2014, resulted in lower indexed loan-to-value ratios. Moody’s forecast that U.K house prices will keep rising in 2015, although at a slower pace, with prices increasing by up to 5%.
Delinquencies and losses reported for the Silverstone Master Trust are lower than the average delinquency reported in the UK RMBS Prime index. However, there is less performance history available for the Silverstone Trust because its is a newer trust. Moody's stated in the presale that to date there have been no upgrades or downgrades of the notes issued by the trust.
Despite the positive performance of trusts, Moody’s doesn't expects a big year for new issuance in 2015. The rating agency is forecasting volume to be only slightly above the £2.3 billion issued in 2014. The Moody's chart below show issuance over the last 14 years.
“The tightening in UK RMBS spreads should help support new issuances as it makes securitization more cost-competitive,” the report states. “However, uncertainty around regulatory capital treatment for investors as well as for issuers remains, which could hamper issuance levels. Furthermore, the Bank of England has extended the Funding Lending Scheme until January 2016, and we expect that lenders will use this in combination with other sources of funding.”