Together Group, a specialist in UK personal and commercial mortgages, is offering some £301.6 million (US$400.2 million) of bonds backed by non-conforming first- and second-lien loans.

The deal, Together Asset Backed Securitization 1 plc (TABS), is a static cash transaction backed by 4,496 non-comforming residential mortgages originated by three of the company’s subsidiaries: Together Personal Finance Ltd., Together Commercial Finance and Blemain Finance Ltd.

The deal size has yet to be determined, but the capital stack includes a Class A note series that will comprise 81% of the issued note balance. The senior notes will be supported by 21% total credit enhancement, consisting of 19% subordination of the junior notes as well as a 2% reserve fund to be included at closing.

The A notes carry preliminary triple A ratings from Moody’s Investors Service and DBRS.

There will also be five subordinate tranches that will tally 15.9% of the pool, as well as a 5% Class Z structure that will be retained by the trust.

The collateral includes both first- and second-lien mortgages, as well as both owner-occupied and buy-to-let investor-owned homes backed by residential U.K. properties.

The transaction is the second securitization undertaken by Together. The UK lender previously issued Charles
Street Asset Backed Securitization 1 Ltd. in 2014, a revolving variable-note cash securitization of non-conforming mortgages in England, Scotland and Wales. That transaction was rated Aa2 by Moody’s and AA by DBRS, and currently warehouses assets that will be transferred into the new Together deal, according to DBRs.

Moody’s cited as one of the deal’s strengths the low weighted-average loan-to-value ratio: 57.1%. Only 0.2% of the pool has an LTV over 80%, according to the rating agency. Most of the loans have also been originated since 2015, and so benefiting from tighter post-crisis underwriting criteria.

DBRS expects many of these loans to outperform more traditional non-conforming loans “because of tighter affordability tests which consider repayment on a capital plus interest basis for owner-occupied interest-only loans (14.2% of the provisional portfolio). “

The average loan size balance is £66,218.

Among the deal’s weaknesses, however, is the large concentration (60.4%) of second-lien loans according to Moody’s. In addition, nearly half (48.2%) of the loans pay only interest, and no principal, and a similar percentage composed of riskier buy-to-let homes. Nearly 62% were underwritten to self-employed borrowers (the highest level among other recent non-conforming U.K. mortgage securitizations).

Another area of concern: 6.86% of the loans are delinquent, with 1.1% more than one month in arrears. Moody’s has assigned a 7% expected loss to the portfolio.

The loans carry high interest rates of 7.8%, and a significant portion of borrowers (13.3%) with prior or existing court judgments. The loans are seasoned an average of 1.27 years, with 15.51 years remaining.

The deal was arranged by HSBC, Lloyds Bank and Natixis.

According to Moody’s, Together Group focuses on low loan-to-value mortgage lending in retail (34.1% of its managed portfolio) and commercial (62.7%) segments underserved by mainstream lenders. The loans are made through brokers, professional firms, auction houses and direct sales.

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