Paragon to Sell U.K. Buy-to-Let RMBS

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Paragon Mortgages is working on the first U.K. buy-to-let transaction of 2013.

Standard & Poor’s has assigned preliminary ratings on the deal. The tranches have not been sized yet but the structure will include a ‘AAA’-rated, class A notes; ‘AA’-rated, class B notes; ‘A’-rated class C notes; and class D notes that have not been rated by S&P.

Macquarie Bank, Llyods TSB and London Branch are the lead arrangers on the deal.

According to the S&P presale report, Paragon stopped originating buy-to-let mortgages between 2008 and 2010. The buy-to-let specialist lender launched the last investor-placed U.K. buy-to-let RMBS, Paragon Mortgages 17, in Oct. 2012.  

The latest transaction will be the second transaction from Paragon that S&P has rated since 2007, and Paragon's third securitization since it resumed lending in 2010

Paragon advanced £135 million in BTL loans in Q2, compared with £190 million in all of 2012.  The collateral pool consists entirely of first-ranking buy-to-let mortgages originated since the beginning of 2011.

S&P said in the presale report that 98.38% of the loans in the pool are currently in their fixed or discount period. 38.05% pay a fixed rate of interest and the remaining 61.95% pay at a rate linked to Libor.  

After the end of the fixed or discount period, 98.02% of the loans will revert to a rate linked to LIBOR plus a variable margin, floored at Libor +4.50%. The remainder will revert to an administered rate.

“The transaction does not have a basis risk swap in place, therefore the portion of the pool comprising loans paying a rate linked to Libor, both before and after the reversionary date, will be subject to basis risk,” according to the presale. S&P said that it has considered this risk in the analysis of the deal.



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