Banc of America Securities has structured what is believed to be the first synthetic securitization of residential mortgages in the U.S. and is eyeballing other forms of consumer risk that could be suitable reference entities. The private deal, dubbed RESI (Real Estate Synthetic Investments), is referenced to a USD12 billion portfolio of Bank of America residential mortgages and was pricing as DW went to press, said an official familiar with the deal.
BofA decided to execute a synthetic, rather than a cash deal, as it wanted to mitigate credit risk and did not need to raise capital, explained the official. The firm opted to securitize a portfolio of consumer risk, rather than corporate debt, because it is more diverse and of higher quality, which makes it attractive to investors. The deal is the firm's second synthetic securitization of consumer risk: in August it securitized a portfolio of agricultural loans made by Northwest Farm Credit Services.
An investor said the structure is novel and is a good idea. "If firms reference synthetic securitizations to secured corporate loans, why not unload risk from a pool of consumer loans?"
The success in placing the firm's first two deals has encouraged BofA to extend the technology to other reference pools of consumer risk, added the official. BofA is also in talks with banks in the U.S. to structure more such deals referenced to mortgages and is exploring securitizing various other types of consumer risk, including commercial mortgage-backed securities, credit cards and auto loans.
In the recent deal, BofA issued nine tranches ranging from B minus to single A and totaling USD138 million. The firm kept the super-senior tranches.
