What Silverstone 2019-1 did was prove beyond doubt that there was a deep bid for UK RMBS in ‘STS’ format with Sonia-linked coupons, with bank treasuries and asset managers alike keen to buy bonds with these features.
Nearly a year later, this has become a permanent and obvious feature of the market, with a huge run of slamdunk sterling deals taking RMBS back almost to cost parity with covered bonds. So it’s easy to forget how uncertain this outcome seemed in the early part of 2019.
Following a rough end to 2018, and uncertainty over the details of the new EU Securitisation Regulation at the start of 2019, deals were backing up in the pipeline and the market was looking for leadership. Asset managers faced hurdles to prove that they could buy products which were “compliant” with an unfinished regulation, and issuers, too, struggled with the required legal approvals.
The end of Libor also raised problems, with call dates creeping forward to stay the right side of the Libor end date. Covered bonds and SSAs had already switched to Sonia for sterling floaters — but neither is a purely floating market like European securitization, and neither had to deal with reversion rates, legacy assets and the other complexities of securitizations.
Nationwide, whose Silverstone bonds trade tightest in the UK market, was the ideal issuer to take the lead on both problems. Senior master trust RMBS has little credit or structural risk, allowing bond buyers to focus on getting comfortable with the new Securitisation Regulation and with the switch to Sonia.
Lead managers Barclays, BNP Paribas, Bank of America and Citi all worked hard testing the market on Sonia before the deal was done, gaining gradual confidence that, while not everyone was ready to move, enough bond buyers would look at Sonia product to get a good deal away. Nationwide itself also spent lots of time with its existing investors in RMBS and covered bonds alike working on the new coupon structure, and adjusted not just its external funding but the whole basis of its balance sheet from the new UK financial year in 2019.
One must acknowledge that, technically, Principality Building Society’s Friary No. 5 was structured with Sonia coupons, as was Elland RMBS, a retained deal for Lloyds at the back end of 2018, and one of the Lloyds risk transfer deals, Salisbury III.
But Silverstone remains the issue that broke the dam. It was a large, public issue, with a chunky slug of sterling in the three year sweet spot, and it paved the way for a flood of other issues to follow — the switch to Sonia came fast and comprehensively, once a trail had been blazed, with Charter Court showing soon afterwards that there was demand for Sonia mezz. By the Global ABS conference, only two months later, it was an unquestioned market standard for UK mortgage deals,
Silverstone 2019-1 wasn’t the most complex or risky deal placed last year, it didn’t involve challenging underwrites or bespoke equity placements — but it was a crucial landmark deal in 2019, the RMBS which changed the market, and a deal that paved the way for much of last year’s supply.
For that reason, Silverstone 2019-1 is GlobalCapital’s 2019 Overall Securitization Deal of the Year.
GlobalCapital would especially like to thank Bank of America for its time and effort in pitching this award.