On the heels of Spain's Bankinter SA's 1.322 billion RMBS, Unin de Creditos Inmobiliarios (UCI), a Spain-based, non-deposit financial institution, is following suit and heeding the advice of market experts by tapping the market with another RMBS transaction. However, analysts close to the deal say this transaction is not as high quality as the Bankinter transaction.

In the face of a global slowdown, market analysts agree that the Spanish market is a safe haven for investors trying to diversify their portfolio (see ASR 10/15/01 p.1). "I think the demand for Spanish RMBS should be good because [investors] want to diversify slightly from Italy," said an analyst at Dresdner Kleinwort Wasserstein.

UCI has set up a special purpose vehicle, Fondo de Titulizacion de Activos UCI 7, that will issue 455 million. BNP Paribas and Banco Santander Central Hispano SA (BSCH) are the underwriters in the transaction.

It's the company's seventh issuance, and like many of the company's other deals, this too will place both domestically and internationally. The deal, which was scheduled to close at press time last week, is backed by a portfolio of participaciones hipotecarios, or mortgage participations.

The collateral is made up of a pool of mortgage loans secured by first-ranking mortgages on residential properties in Spain. The A-class notes received a preliminary rating of triple-A and the B-class maintained a preliminary rating of single-A from Standard & Poor's. According to S&P, the collateral is strong and the mortgages are first charge mortgage loans. Another benefit of the deal is that 94% of the portfolio has an LTV of less than 80% and at closing the subordinated loan will be fully drawn and provided by BSCH and Union de Credit pour le Batiment SA (UCB). Moody's Investors Service also gave an equivalent preliminary rating.

However, there are some concerns with this transaction. "I think there could be a problem with this deal just because it's not a normal RMBS transaction out of Spain," said the analyst at Dresdner.

The deal consists of various types of mortgages. Nearly 8.5% of the mortgages have a prefixed installment for the first three years, and therefore if interest rates rise, the incremental cost to the lender will be capitalized. In the first three years, borrowers also have the ability to skip one month of payment.

"The first two or three years are the most delicate of the loan interest being paid," said Jose Ramn Tora, director of structured finance in the Madrid office of S&P. "[UCI] makes it easier for [borrowers], but it makes it more difficult to know what the client is going to do."

The deal also has a basis risk. The mortgage loans are indexed to four different rates and the bonds are indexed to three months Euribor, and unlike the Bankinter transaction this deal does not have a basis swap. "That clearly makes this inferior to the Bankinter transaction," said the analyst at Dresdner, although the analyst noted that many Spanish RMBS transactions do not offer basis swaps. "They don't offer it because they don't feel they have to - the Spanish market is very competitive, which one really has to take into account."

However, there are other differences that notably make UCI's transaction less attractive than Bankinter. "[The UCI transaction] has a higher LTV ratio, plus there are loans that are above 80% LTV - and then at the same time it does not offer a basis swap," said the analyst. "I'm not saying that it's not great, it's just that the quality is not as good - Bankinter was one of the best you could get."

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