NBL issues first second-charge mortgage security since crisis

Optimum Credit has raised £256m from the capital markets for its first issuance after pricing senior notes at 95 bps. It is the first second charge mortgage securitisation since the global financial crisis.

Optimum Credit, a non-bank mortgage lending platform owned by investment firm Patron Capital, has completed its first securitisation of UK second-charge mortgages.

The firm raised £256 million ($332 million; €292 million) from the capital markets with a strong interest for the senior tranches of the portfolio, which was priced at 95 basis points.

Across the market for residential mortgage-backed securities (RMBS), senior tranches have recently been priced at a tighter spread, around the 80 – 85 mark.

Explaining the wider spread on the senior tranche, Ashish Kashyap, investment director at Patron, said that it was important to get investors on board for the first securitisation of second lien mortgage loans since 2004.

“The pricing is a reflection of the fact this was an issuance from a new platform that had only been lending for three years, so we didn’t want to try and match those levels,” he said.

“I expect further issuances would come in tighter, but we wanted to make sure there was enough investor demand.”

According to a statement from the firm, demand for the senior notes was more than double that which had been expected.

The portfolio consists of almost 6,000 consumer borrowers with a significant chunk (13 percent) of them self-employed. Average loan-to-values were 64 percent and the majority of the loans were underwritten in 2016. Delinquencies are at 0.73 percent.

Optimum holds a 5 percent bottom risk in the security.

NatWest Markets served as the arranger and sole bookrunner.

Optimum has been originating second-charge mortgage loans since 2014. The firm provides credit ranging between £5,000 and £500,000 and maximum LTVs of 85 percent.

The placing of the securities, a first in Europe of second lien mortgage loans since before the global financial crisis, is a testament to increasing demand for exposure in the RMBS space, as well as greater confidence in the ability of non-bank lenders to construct a high credit worthy loan portfolio.

Kashyap said demand for senior notes was driven by an over-supply of buy-to-let mortgage and prime mortgage securities. “Investors are looking for an exposure to a new asset class and they see the better returns available in the second lien market,” he said.