The new deal features collateral originated by the Kensington brand, which also provided collateral for Investec’s RMS 25 non-conforming deal last year. The pool, though lent to prime borrowers, features 20% buy-to-let, 31% interest-only, and 25% remortgages.
Investec is also seeking to sell the mezzanine notes in the £204m deal.
It will mitigate extension risk to the senior notes by including a Gilt strip redeeming at the expected maturity date – an identical feature to RMS 25. If Investec does not call the notes, the senior noteholders will receive the proceeds of the Gilts.
Investec Capital Markets and Barclays Capital are lead managers.
Buy-to-let specialist Paragon will be watching the deal’s performance closely. The non-bank lender has made it widely known that it wants to return to securitisation, and has mandated Lloyds Bank Corporate Markets, Macquarie and Morgan Stanley for a deal.
Like Investec, Paragon will need to deal with investor fears about extension risk, and it has made it known it wants to sell the capital structure of the deal, not just the senior notes. Pricing will be well outside UK prime. Performance in legacy Paragon deals has been impressive, however, with far lower arrears than Bradford & Bingley’s buy-to-let master trust, Aire Valley.
Buy-to-let is an attractive asset class for some, since it effectively gives a dual-recourse – even if the mortgagee ceases to pay, there is usually still a tenant in place paying rent.