European RMBS hit a record volume in 2005, climbing 14% to $175.2 billion. With the European housing markets improving, analysts say there's more healthy activity in store for 2006. The vastness of the market is noteworthy in and of itself, but one star in the RMBS galaxy shines brighter than the others: Northern Rock's securitization of first loss position from outstanding deals.

Snatching the award for the European Deal of the Year, the GBP423 million ($730 million) Whinstone deal is the first public securitization of on-balance sheet reserve funds and by far the largest transaction of its type completed in the international markets. The deal employed an innovative structure, using a credit default swap to transfer reserve fund risk. Lehman Brothers structured the deal and was joint lead with Barclays Capital.

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