The fourth U.K. subprime RMBS deal priced last week, bringing total subprime issuance to date to 3.5 billion ($4.5 billion). Demand for the familiar U.K. non-conforming names drove pricing levels at the tight end of price talk, but for the new kid on the block, demand was somewhat reluctant.
Rooftop Mortgages Ltd., a relative new comer on the non-conforming RMBS scene saw its GBP125 million ($235 million) Farringdon Mortgages No.1 Plc price outside of indicative levels. The A1 class notes priced at 13 basis points over three-month Libor, two basis points wider than talk; the A2 class notes widened by three basis points, pricing at 20 basis points over Libor and the triple-B rated B1 class notes priced at 115 basis points, 10 basis points wider than original talk.
The deal priced at a premium compared to the other subprime deals marketing at the same time, reflecting the issuer's lack of an established track record. "It is unusual at present for a U.K. RMBS deal to take a while to come to market, price wider than price talk and offer spreads wider than CMBS," said analysts at Merrill Lynch. "Eight percent arrears greater than 30 days at launch for a deal with an average seasoning of just 60 days is material, particularly for an originator and servicer hoping to have the capacity to increase its mortgage book substantially."
The other two subprime names to price at the same time are more-established issuers that generated more interest and tighter pricing levels. Southern Pacific and RMAC's pricing show signs of further tightening in the U.K. non-conforming RMBS sector, reported analysts at JP Morgan Securities.
After an upsizing, RMAC 2005-NS1 plc. priced its triple-A notes at the tight end of price talk - six basis points over three-month Libor for the triple-A dollar-denominated piece, 13 basis points over Euribor for the triple-A euro-denominated piece and 13 basis points over Libor for the sterling triple-A's. Compared to the launch spreads of Southern Pacific, SPS 05-1, the longer dated triple-A tranches priced two and three basis points inside of guidance for the euro and sterling pieces.
"The slightly poorer pool, 12% second-lien mortgages, meant that SPS 05-1 priced at a premium over RMAC 05-NS1 of two to five basis points across the capital structure, though this has narrowed slightly during light trading in the secondary market," added Merrill Lynch analysts.
Kensington Mortgages joined the line-up, pricing its GBP800 million Residential Mortgage Securities 20 plc. The euro tranches all priced inside the sterling tranches with the longer dated 3.3-year triple-A rated sterling notes pricing at 13 basis points over Libor and the triple-A euro paper pricing one basis point tighter at 12 basis points over Euribor.
"We believe that, with the housing markets likely to experience at least a slowdown, non-conforming and subprime loans should suffer earlier than higher quality loans, reported analysts at the Royal Bank of Scotland. "However, we believe that relative value still exists within the sector, at least selectively."
Outside the U.K., SNS Bank's Holland Mortgage Backed Securities (Hermes) IX B.V. priced its senior notes at 10 basis points over three-month Euribor. Further down the credit curve, the deal priced at the lowest levels seen thus far for RMBS paper, pricing its single-A piece at 26 basis points over the three-month Euribor, the triple-Bs at 50 basis points over Euribor and the triple-B minus class at 80 basis points over Euribor.
Prologis' fifth CMBS pan-European transaction, Prolo IV, will offer investors 389 million of notes backed by properties in the U.K., France, Germany, Spain, Italy and the Netherlands. The capital structure will include three tranches, all with five-year average lives.
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