TSB Bank Launches First UK RMBS Under Sabadell Brand

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TSB Bank, which is owned by Banco Sabadell, plans to offer a mix of euro and sterling denominated bonds under its newly minted U.K. master trust called Duncan Funding, according to Moody's Investors Service.

The inaugural transaction, Duncan Funding 2015-1, will offer bonds backed by a £2.32 billion ($3.54 billion) portfolio of prime residential mortgages originated by TSB and – prior to middle of 2013- subsidiaries of Lloyds Banking Group (Cheltenham and Gloucester, Lloyds TSB Bank, Lloyds TSB Scotland). All the loans in the pool are secured by residential properties located in the England, Wales and Scotland.

TSB launched in September 2013 and is headquartered in Edinburgh. The bank was formed from a number of Lloyds TSB branches in England and Wales, all branches of Cheltenham & Gloucester and the business of Lloyds TSB Scotland. On July 8, 2015, the bank was acquired by Spanish banking giant Banco Sabadell.

The deal is collateralized by loans with low loan-to-value ratios that are well seasoned and made to prime borrowers. According to Moody's presale report, these loans have a weighted average (WA) remaining term of 18.8 years and are seasoned 3.4 years. The mortgages are a mixture of fixed rate loans (54.6%), standard variable rate loans (35.8%); homeowner variable rate loans (8.6%) and Bang of England base rate loans (9.6%).  The loans have a WA loan to value of 63.7%.

There is a five-year revolving period during which additional loans may be added to the pool. However, no loans will be included in the pool if they contain any arrears or have been in arrears in the previous 12 months; and the eligibility criteria does not allow for buy-to-let, right-to-buy or self-certified loans.

Barclays, Banco Sabadell and Bank of America Merrill Lynch are joint lead managers.

Moody's has assigned preliminary ratings of 'Aaa' to three classes of A notes. The class A1 notes are denominated in sterling; the class A2 tranche is a mix of fixed- rate and floating-rate notes denominated in euro and sterling respectively. All of the class A notes benefits from 10.2% credit enhancement and are structured with a legal final maturity date of December 2062.

At the subordinate level, there is a tranche of 'Aa2' rated class B notes that benefit from 6.2% credit enhancement, and 'A1' rated class C notes that benefit from 5.2% credit enhancement.  The class B and C notes are sterling denominated and are due December 2062. These tranches have not been sized.

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