UK’s Skipton Launching £524.4M RMBS Pool

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A £524.4 million (US$755.6 million) series of prime, owner-occupied mortgage loans originated by UK’s Skipton Building Society will be packaged into the fourth securitization pieced together by the UK financial institution.

Darrowby No.4 plc will comprise an issue of Class A and Class B notes, with the Class A notes due 2048 slated to have 92.5% of the pool’s assets, according to Moody’s Investors Service.

Moody’s on Tuesday assigned a provisional ‘Aaa’ structured finance rating to the Class A notes, similar to the preliminary expected rating of ‘AAA’ that Fitch Ratings gave to the portfolio on Monday. The Class B notes will be unrated.

The pool of loans, totaling 4,350 with an average balance of £120,549 and remaining terms of 20.4 years, is the first residential mortgage-backed securitization undertaken by Skipton (rated ‘Baa2’ by Moody’s, ‘BBB+’ by Fitch) since April 2014 when it issued a £400 million (convertible to US$665 million at that time) Class A notes structure with £47 million of Class B notes supported by £447 million (US$743 million) in loans.

Moody’s reports 74.6% of the loans are fixed rate, and none were more than one month in arrears.

The new pool is largely similar in structure to Darrowby No. 3 plc (also with ‘Aaa’-rated Class A notes), but under Moody’s analysis has a slightly higher weighted LTV average of 68.3%. That, along with a much smaller pool of interest-only loans compared to Darrowby No. 3 (4.5% vs. 25.2%) presented Skipton with only having to provide an 8% Moody’s calculated credit enhancement that will be provided by the Class B notes. (The CE figure is in line with current UK RMBS transactions, according to Moody’s).

Darrowby No.3 required a 12% CE.  Fitch’s own figures put the credit enhancement at 10% for Darrowby No. 4.

Skipton’s previous RMBS transactions were in March 2011 and May 2014, with all four transactions representing £1.06 billion in mortgages. The member-owned, mutual lending and saving building society in North Yorkshire also issued a £750 million covered bond in 2008 backed by residential mortgages.

Darrowby No. 4 will require an amortizing 2.5% reserve fund of the total notes issue (equivalent to 2.77% of the rated note balance).

HSBC is the swap counterparty to Skipton, which will remain servicer and cash manager for the loans.  


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