The Royal Bank of Scotland was set to launch a E750 million ($1.2 billion) MBS transaction last week. The deal - called Mound Financing No.1 - was backed by a portfolio of nearly 24,000 residential mortgage loans, mostly located in London and the south of England, with a total book value of E1.7 billion.
Salomon Smith Barney acted as lead manager on the transaction, and it was the first time a master trust structure has been incorporated into a U.K. residential mortgage deal.
The deal was split into six floating-rate tranches, incorporating both sterling and dollar notes with the intention of widening distribution. The A class notes were split into three separate $208 million notes with average lives ranging from 2.9 years to seven years, as well as a E285 million tranche. All four tranches were rated Aaa by Moody's Investors Service and AAA by Standard & Poor's.
In addition, two other sterling notes were incorporated into the structure, principally as protection for the A-class notes. The two E37.5 million tranches were rated A1 and Baa2 and A-plus and BBB by S&P.
Moody's was comfortable affording the ratings to the master trust structure, which allows RBS to substitute loans in the mortgage pool for the first seven years of the transaction. Protection for the A-notes is also offered by a reserve fund and excess spread.