THE FIRST European subprime mortgage securitisation deal since the financial crisis is set to be completed in the coming days after being scaled down in size.
The issue from Investec, the South African bank, could be priced as early as today, say sources. But it will offer just £130 million of top-rated mortgage bonds, below the £250 million that it had hoped for a month ago.
The potential reopening of the subprime mortgage bond market in Europe is seen as significant by investors and bankers alike.
“It is an important signal if the deal is successful,” said Mirja Wenkic, managing director at Harbourmaster Capital, a Dublin-based investor in securitisation deals. Securitisation, which involves taking a pool of mortgages and turning them into bonds backed by repayments of the original loans, was an important form of funding for banks pre-crisis.
By moving a large amount of loans off their balance sheets, banks were able to lend more.
People close to Investec stressed the size of the deal had been set before it was marketed to investors and had been cut because the bank did not have the collateral to support a larger deal.
The total size of the deal is £186 million but only the £130 million of top-rated AAA paper is being issued. Investec is holding on to the lower-rated equity and mezzanine levels but could sell them in the future.
The bulk of the mortgages in the Investec deal are so-called “non-conforming”, a UK definition that ranges from strong borrowers who are not able fully to prove their income – such as the self-employed – to subprime in the US sense where the borrowers have a poor credit history.
The loans in the deal were mostly made before the credit crisis, when lending standards were at their weakest, but investors said the fact that they were still paying made them attractive.
“To the extent you’ve got performing, seasoned loans, they’ve already been stress-tested,” said Chris Ames, head of asset-backed securities at Schroders, the investment group. – Copyright The Financial Times Limited 2010
