U.K. mortgage lender Platform Home Loans, the wholly owned subsidiary of private equity house Cabot Square Capital, came to market recently with its second securitization of sub prime and near prime conforming residential mortgages.
The company brought in Morgan Stanley Dean Witter to arrange and lead manage the GBP206 million ($307.5 million) transaction, called Platform Home Loans No.2, with Barclays Capital, Credit Suisse First Boston and ABN Amro acting as co-leads on the triple-A notes.
The transaction was backed by nearly 4,100 loans originated by Platform Home Loans with an outstanding balance of GBP210.3 million. The average loan-to-value of the pool is 80.7% with an average seasoning of six months. The loans were originated evenly throughout England.
Platform No.2 was split into three main tranches: A GBP183 million Class A was priced at 42 basis points over three month Libor, carries a 2.5-year average life rated and was rated Aaa by Moody's Investors Service and AAA by Fitch IBCA. A GBP14.5 million, mezzanine tranche was priced at 130 over, had a 7.2-year average life and earned A1 and A-plus by Moody's and Fitch IBCA, respectively. Additionally, GBP8.5 million in Class B notes, which carry the same average lives as the mezzanine class, priced at 265 over and were rated Baa2 and BBB.
Initial credit enhancement of 12.5% for the A notes comes from subordination on the mezzanine (7.2%) and B tranches (4%), a reserve fund (1.3%) derived from sales of the GBP5 million unrated C tranche that could grow to 2% from excess spread.
Pricing for the company's second securitization compares favorably with its first deal launched last December (ASRI, 12/13/1999, p.12). A GBP297 million transaction lead managed by Barclays Capital, the triple-A-rated notes were priced at 65 over the three-month Libor, which some suggested reflected Y2K fears at the time.
"In December, the millennium bug was clouding all our lives, but this time we were very pleased with the pricing," said David Tweedy, managing director of Platform. "We think that [the most recent deal] reflects where we thought we should be, given that this is our second deal. It places Platform at very competitive levels."
An official at one of the syndicate banks disagreed that Y2K worry was a factor, and offered that better pricing had been achieved this time through better execution.
"The [most recent] deal went extremely well and we were oversubscribed on all the tranches," he said. "The difference between this and the first deal is a combination of factors: The originator got crushed at the end of last year by a sloppy deal. I wouldn't even call it Y2K fears, basically it was done poorly. This time around they got a clean market, an interested market and I think we did a good job for them, getting them much more competitive market clearing levels."
The official added that the half the bonds were sold to U.K. investors, with the remainder sold to investors in the rest of Europe. For both regions, the predominant buyers were banks, with the U.K. also seeing interest from some insurance companies and money managers.
"We use securitzation because it is an efficient way of securing long term funding in terms of execution and cost," Tweedy said. "It provides for enhanced return on capital and seeing as our company is set up to execute securitizations, the process is very straightforward."
Tweedy predicted that Platform would return to market next year, probably in the second quarter, with the third installment in the series.