TwentyFour Asset Management

Coventry Enters RMBS Premier League

TwentyFour Blog

Coventry Building Society today priced a well-received £350m 2.5 year UK RMBS deal, and by using a Master Trust style structure (historically the preserve of only the largest UK banks) the issuer has beaten its own path to joining the big leagues of RMBS.

Being only the third ABS deal from Coventry, in our view there was a healthy rarity value to this inaugural Economic Master Issuer 2020-1 transaction. Remarkably, the deal was 3.6x subscribed and priced at Sonia+47bp, the same pre-COVID level at which Nationwide Building Society priced a three-year equivalent bond in early February. The demand for high quality European ABS remains strong, which is perhaps unsurprising given it offers positive yield and is arguably one of the most defensive fixed income instruments.

A Master Trust structure is more complex to establish and maintain for issuers, but it allows the issuance of multiple series of bonds from a single large pool of mortgages, and as a result makes sense for lenders with ample collateral. Master Trusts allow for bonds in differing currencies but also with bullet maturities or scheduled paydowns. The benefit for Coventry is a long term funding sleeve with the ability to quickly tap a larger pool of traditional global fixed income investors, joining the likes of Lloyds, Santander and Nationwide which have operated their own Master Trust programmes for many years.

Regular readers will know about Coventry’s prudent growth in recent years, and this owner-occupied £1.15bn pool reflects that, having 2.6 years of seasoning and a low loan-to-value (LTV) of 57.3%.

We do not expect to see much more in the way of Prime UK RMBS in 2020 thanks to cheap alternative central bank funding, namely through the new Term Funding Scheme (TFSME). However, Coventry’s demand and execution should certainly catch the attention of treasurers up and down the country who had been considering issuance.



TwentyFour Asset Management
TwentyFour Blog

Santander Shows Leadership in UK RMBS

We engage with Santander as a debt issuer across many jurisdictions and various fixed income products, and we have had mixed views on the bank’s behaviour in recent years following a controversial approach to a 2018 AT1 refinancing and the exercise of an early call in a Spanish ABS deal in 2019. On both these occasions, we felt bondholders were treated poorly and this was reflected in our ESG analysis of the issuer.

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