Rank Hovis McDougall brought the first whole business securitisation in Europe with a STG650 million multi-tranche deal.
Via Special Purpose Vehicle RHM Finance Ltd 'Pride', the securitisation was different to the typical mortgage backed or asset backed deals. A syndicate official from JP Morgan Chase explained: “It is a breakthrough deal. It was based on brands. This means the quality of the brands and the ability of them to sustain revenues over a long period. Also, in terms of structure it was different to a normal ABS because we were not selling triple-A tranches down. But we started at a triple-B level and had some double-B's also.”
This excluded many investors who would normally buy triple-A rated paper. But it also proved difficult for people who cannot invest in deals rated below single-A. A British fund manager commented this made it impossible for him to buy into the three Baa2 portions because most of his funds were restricted against this. He said however that he bought into the Ba3 rated tranches for his high yield fund.
“It offered value as a high yield deal,” he said. “It is not a credit that can be locked away and forgotten about. As a manager you need to pay attention to it. But in terms of headline yield against the rating it looks good value. Especially as it is shorter dated meaning a shorter risk period.”
However, the transaction was priced to clear according to the syndicate official and all the investment grade and high yield tranches were sold out.
The marketing of the deal also proved tricky because the whole business was being securitised. The syndicate official explained that investors had to be educated about the transaction. This was particularly true with high yield investors who are used to buying straight credit risk paper. “We had to educate them about the triggers and protections securitisations offer,” the syndicate official said.
The deal was entirely bought by investors in the UK and Ireland.
Rank Hovis McDougall was bought by Private Equity firm Doughty Hanson in July last year for £1.139 billion. This deal was to help pay for that acquisition.
The baker is known for brands like Hovis and Granary breads as well as for producing cakes for companies like Mr Kipling and Cadbury.