European Residential Loan Securitisation 2019–PL1 saw initial price thoughts released on Monday with the spread on the senior notes between 90bp and 100bp.
Guidance then showed the senior notes at about 100bp, with coverage at 1.7x on the seniors. The class ‘B’ was 1.3 times done, and also came at the wide end of initial pricing thoughts. The class ‘C’ was 1.2 times covered, and the rest of the stack was undisclosed.
The PL shelf is Lone Star’s reperforming programme. This deal is backed by collateral originated by Permanent TSB, with 96% of the mortgages having been in arrears, and 75% restructured. Some 17% of the loans are in negative equity.
Lone Star bought them as part of the Project Glas portfolio sale last year. The firm has a track record of buying Irish portfolios using securitization financing, releveraging in the market as needed — and may ultimately sell loans back to a regulated bank.
The €356.4m triple–A rated senior tranche had a weighted average life of 1.44 years, with the rest of the stack at 1.53 years.
One investor cited potential liquidity issues in the ERLS deals, but pointed out that the incentives to call were strong.
“All the market technicals and liquidity is factored in when we are investing in something,” said the first investor. “For this transaction, we think there isn’t a lot of liquidity necessarily, but it is relatively short dated and there is an incentive in the deal structure to call the deals at the call dates.”
On the step-up date, the class ‘A’s will see a 75bp hike in coupon, while the rest of the stack will see a 100bp hike. Class ‘C’ to ‘F’ notes will also get an additional note payment if the deal isn't called.
Morgan Stanley brought another ERLS deal in July this year, backed by non-performing loans originally written by Bank of Scotland, Start Mortgages and Nua Mortgages. Lone Star bought part of the book in 2014, but it has recut it so that reperforming assets can be financed more cheaply.
ERLS 2019–NPL1 saw senior notes pricing at a DM of 230bp over one-month Euribor.
“I feel more comfortable with prime assets in less prime locations,” said the second investor. “There is a good chance a lot of them won’t find their way back into credit problems within a reasonable time frame.”