The Last Word: Going Dutch

Venn Partners, a specialist credit advisory and investment manager, is due to launch the first new prime Dutch RMBS issuance platform since the financial crisis, after acquiring a €500m book of prime Dutch mortgages from GE Capital. Jonathan Clayton, managing partner, talks to Anna Devine about the deal.

Q. How does the acquisition of this mortgage book help you in establishing a new lending platform?

The capital and funding pressures on financial institutions and retrenchment of many mortgage lenders has impacted the Dutch mortgage market. The key to any successful mortgage business is in establishing efficient term liabilities. This acquisition provides a prime quality book, with the scale to launch our first RMBS issuance and establish an efficient financing platform. Successfully establishing our RMBS issuance and associated investor base gives us the comfort we can become a repeat issuer, establish an efficient financing platform to provide a competitive alternative to borrowers.

Q. What will the first issuance look like?

We announced our first RMBS issuance, Cartesian 1, in February led by RBS. It was important to us to ensure our deal is structured in line with other prime issuance platforms. It will be Dutch Securitisation Association (DSA) compliant and loan data tape reporting in accordance with ECB requirements. It will be publicly rated by Fitch and S&P, and we are looking to place Aaa, Aa and A rated notes. It is a standard Dutch structure backed by a static portfolio and a sequential waterfall with a step up and call in year five on the Aaa notes. The collateral demonstrates pool and performance characteristics in line with other prime Dutch RMBS, reflecting the prime underwriting criteria set by GE Artesia. It is well seasoned at 8.7 years, having been originated between 1997 and 2008. Primary and special servicing will continue to be provided by Quion.

Q. When will you start originating?

We are looking to start originating shortly after closing the Cartesian 1 securitisation. Quion have a well-established white labelled origination platform with an extensive IFA network which we will look to partner with. We have our own defined underwriting and lending criteria and mortgage products we wish to target. However it is important to firstly establish a successful placement of Cartesian.

Q. Why did you decide to enter the market?

The Dutch mortgage lending market is attractive for a number of reasons: the strong regulatory environment; high affordability due to partial tax deductibility of interest; low barriers to entry; attractive rates in the non-Nationale Hypotheek Garantie (“NHG”) sector; and an oligopoly of domestic mortgage providers, with balance sheet constraints and retrenchment of smaller foreign players presenting a lending market with reduced competition. In addition we have seen reduced new issuance volumes in RMBS and we see demand for good quality well structured product from ABS investors.

Q. Have you seen anything similar elsewhere?

There are few independent mortgage lending platforms supported by RMBS issuance, many of which were impacted in the crisis. Certainly since the crisis, we are not aware of any new entrants in Holland. However we note the growth in non-bank lending platforms in Europe, and the increasingly important role to ensure an efficient flow of capital and credit outside of bank balance sheets.

Q. What is it about this deal that is unique?

There have been a lot of NPL disposals across Europe out of banks but there haven’t been many prime performing portfolios disposed of. To our knowledge this is one of the biggest prime portfolios to be acquired by a non-bank in Europe. It is also the first time a non-bank has established a new prime securitisation platform in Holland since the crisis.

Q. How does this deal fit in with how the private debt market is evolving, in your view?

We see interesting risk returns in many direct lending markets where banks have retreated or have lending constraints. Private debt as an asset class is growing, and more institutional investors are looking to make allocations into this sector. The key to private debt / direct lending is ensuring best in class origination, underwriting and loan management. This belief certainly underpins our business model and our positioning into the asset financing markets to provide an aligned partner to investors in these opportunities.

Jonathan Clayton is the managing partner of London-based credit advisory and investment management group Venn Partners.