Paragon Mortgages is marketing bonds backed by a pool of buy-to-let mortgages worth £130 million ($204 million) in its second securitization of the year, according to Moody's Investor Service

The transaction, Paragon Mortgages 23, will issue bonds in both euros and sterling. Moody’s has assigned a preliminary ‘Aaa’ rating to the class  A notes,  ‘Aa2’ to the  class B notes, and  ‘A1’ to the class C notes.

Lloyds Bank, Macquarie Bank, Morgan Stanley and Natixis are joint lead managers.

Most of the loans will be originated before the transaction closes but the structure allows for an additional £60 million in loans to be added to the pool by December 31, 2015.  This introduces additional risk into the deal because the loans added at a later date may not be the same credit quality.  

Paragon will also allow up to 10% of product switches in the pool (most of the loans are fixed-rate at transaction close) as the issuer has done in the last two transactions, Paragon 22 and 21.  In deals issued prior to Paragon 21 these loans have been repurchased.  The fixed-rate loans have a term of 21 years and are seasoned only one month.

The deal features prime borrowers with low leverage. The maximum loan-to-value ratio of the mortgages currently in the pool is 82%, before accounting for fees, compared with 82% for Paragon 22 and 85% for prior Paragon deals. For loans larger than £500,000, £1 million and £2 million, the LTV is restricted to 80%, 75% and 70%, respectively. The overall weighted LTV of the loans in the pool is 72.4%, which, according to Moody’s, “compares favorably with the overall buy-to-let market.”

No borrowers in the pool have been subject to any bankruptcy, individual voluntary arrangement or county court judgments.

Collateral performance of Paragon transactions has been consistently better than the buy-to-let sector, Moody’s notes in the presale. “The strong U.K. rental sector is partly due to a growing proportion of the U.K. population relying on the private rental sector due to lifestyle choices or affordability constraints as credit conditions remain tight despite the recent increase in mortgage lending and initiatives designed to boost the credit supply,” the report states.

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