U.K. bank Northern Rock returned to the market recently with the third deal in the Granite series. Called Granite 00-2, the GBP1.5 billion ($2.1 billion) transaction is backed by a pool of residential mortgages originated by the bank. As on the first two issues, J.P. Morgan was arranger and lead manager. Merrill Lynch, ING Barings and Salomon Smith Barney were brought in as co-leads.

The underlying portfolio consisted of almost 26,000 loans worth around GBP1.6 billion and with an average loan to value of 66.8%. The loans are concentrated fairly evenly throughout England and Wales.

Credit enhancement for the deal will come from excess spread accrued, a cash reserve that will amount to 1.75% of the outstanding loan balance for the life of the transaction and subordination on the junior notes.

Granite 00-2 is the first Northern Rock deal that does not exclusively feature sterling denominated bonds. This time around, a $1 billion Eurodollar A2 tranche, rated Aaa by Moody's Investors Service and AAA by Standard & Poor's, was included to widen the investor base. The notes carry 3.7-year average lives and priced at 23 basis points over three-month Libor, as did the triple-A rated GBP500 million A1 tranche.

Also included was a GBP48.1 million B tranche, rated Aa3 and AA, which priced at 42 over and GBP39.7 million of C notes, which carry a spread of 130 over and were rated Baa1 and BBB.

Syndicate officials at the lead managers said the deal was fully subscribed at launch, a reflection of Northern Rock's status as a repeat issuer and the added investor base brought about by a dual currency transaction.

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