UK Mortgages Limited– First Transaction
The Board of UK Mortgages Limited (UKML) and TwentyFour Asset Management LLP (TwentyFour) are pleased to announce that the first transaction for UKML has been signed.
Since UKML’s listing the team at TwentyFour has been developing their relationship with The Coventry Building Society Group (The Coventry) towards an initial transaction that was signed yesterday
UKML will invest in profit participating notes (PPNs) which will derive their value from a high quality pool of £310 million UK buy-to-let non-member mortgages from The Coventry. The pool comprises 1,743 recently originated mortgages with an average balance of £178,855, and an average loan to value of 65%. The Coventry was the originator of these mortgages and following the transaction they will continue to service them, resulting in a seamless transaction for the borrowers.
As this is the first transaction, a significant majority of net IPO proceeds raised by UKML will be invested to finance the acquisition of this pool of mortgages. This limits the size of loan financing required at the outset, thus making the transaction more efficient for UKML in the early stages.
The funding for this transaction will be supplemented by a loan financing facility with Bank of America Merrill Lynch which is available for up to 2 years, thereby providing maximum flexibility on the timing of the securitisation. The transaction’s capital allocation will be rebalanced as further transactions are completed or when the pool is securitised. It is expected that the long-run capital usage from this first deal will be around £51million upon securitisation, so representing the deployment of approximately 20% of UKML’s initial capital raise.
The initial transaction with The Coventry combines high quality mortgages and low initial leverage, a combination that TwentyFour believes will generate an appropriate risk-adjusted return. The estimated annualised return of this first portfolio over its life is 7.35% gross* (assuming securitisation takes place as intended).
TwentyFour has been working concurrently on other potential transactions which target slightly higher yielding mortgages with the goal of providing a good balance with this initial transaction. TwentyFour will also seek to build on its relationship with The Coventry with a view to further deals in the future. Further updates will be provided as transactions are closed.
Chris Waldron, Chairman of UK Mortgages Ltd said “The Board is very pleased that UKML is able to fund such a high-quality transaction with such a strong counterparty. A great deal of work has been completed by all sides in a relatively short timeframe to allow this transaction to happen. We look forward to adding further transactions in due course.”
John Lowe, Finance Director of The Coventry Building Society said, "This is a positive transaction for The Coventry, which matches our strength as an originator of high quality mortgages with the strong demand from investors and builds on the strong relationship we've developed with TwentyFour Asset Management over a number of years."
Douglas Charleston, Portfolio Manager at TwentyFour said “Coventry Building Society is a business that we have worked with in the past in many guises, and one that as we progressed through the establishment of UKML we hoped to engage with as a partner. To have completed a transaction with an originator that the RMBS market is already familiar with, and with such an enviable track record, gives UKML a very steady foundation on which to build.”
Further information
TwentyFour Asset Management LLP
Ben Hayward
Douglas Charleston
020 7015 8900
Numis Securities Limited, Corporate Broker
Hugh Jonathan
Nathan Brown
020 7260 1000