Spanish bank Santander confirmed a GBP1.3 billion proposed takeover of U.K. lender Alliance & Leicester last week. The proposed deal would give A&L a bigger financial platform that should bode well for the two securitization programs it has outstanding.

A&L's two securitizations, the Fosse and Langton master trusts, remain stable with negligible losses to date, although Deutsche Bank analysts said that the bank could have been facing some severed funding issues in the short term.

"A&L has been under intense pressure given its heavily wholesale funded, mortgage 'monoline' business model," Deutsche Bank analysts said. "Given the rating downgrades earlier this year and sharply lower mortgage origination volumes recently, the ability of the lender's mortgage master trust to survive the current crisis may have been in question."

More specifically, a de facto asset run-off combined with rating downgrades could have threatened the ability to substitute collateral while putting the non-asset seller share trigger at risk of breach, according to Deutsche. Santander's acquisition is seen as a positive for RMBS because of the superior credit profile and funding franchise of the acquirer.

The Langton master trust was launched in April this year and will likely to be used as eligible collateral under the Bank of England's SLS facility.

Deutsche Bank analysts said that they did not anticipate any servicing disruption risk under a Santander acquisition because of the Spanish bank's experience in owning and managing a major U.K. mortgage lender in Abbey, which it took over in 2004.

They also said it's unlikely that Santander, will seek to consolidate A&L's mortgage trust with Abbey National's Holmes master trust program.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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