West Bromwich Plans First U.K. RMBS of 2013

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West Bromwich Building Society is planning the first investor-placed prime U.K. residential mortgage securitization of the year— a £380 million ($579 million) senior tranche from the deal Kenrick No. 2.

Moody’s Investors Service has assigned preliminary ratings of 'Aaa' to the class A floating rate notes due 2049. The deal also has class B floating rate notes due 2049 that are unrated by Moody's.

The notes are backed by a pool of prime owner-occupied U.K. residential mortgage loans originated by West Bromwich Building Society. The deal is the third securitization of mortgages originated by West Bromwich and the second since the financial crisis, following Kenrich No. 1 in 2012, according to Moody's. At closing the total credit enhancement for the class A notes will be 12.40%.

As with Kenrich No. 1, and contrary to most U.K. RMBS, there is no equitable assignment of mortgages. Instead, the deal has an originator trust structure, whereby mortgages are ring-fenced in favor of the issuer and West Bromwich.

The absence of U.K. prime RMBS issuance has held back overall securitization volumes in Europe this year.  The Bank of England’s Funding for Lending Scheme (FLS) has suppressed securitization volumes since it was launched in mid-2012. The scheme allows banks and building societies in the U.K. to use certain pools of loans as collateral against borrowing Treasurys from the BoE with a maturity of up to four years. Originators can borrow up to 5% of their loan book, plus any next expansion of lending. Under the scheme, funding rates are lower, in most cases, than what the real market can offer, making it less attractive for banks to securitize loans.

The scheme was originally set to terminate in Feb 2014, but the BofE recently announced it would be extended by one year to January 2015. 


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