-- Daniel Flatt
Residential mortgage-backed securitization, Ludgate Funding PLC series 2006-FF1, has drawn £598,059 ($1.2 billion) from its reserve fund this quarter, representing 40% of the opening quarter reserve balance of £1.5 billion ($3 billion). "As a percentage of the total reserve fund, this is the largest reserve fund draw that we have seen from a Standard & Poor's rated UK RMBS transaction to date" said Standard & Poor's credit analyst Kate Livesey.
According to Mortgage PLC, the servicer of the loans, the draw is due to "unprecedented and unforeseeable" developments in the credit markets and not related to the credit quality of the pool. In a statement the firm said, "the draw is necessary because of the widening spread between [Bank of England Base Rate], which is the basis on which Ludgate receives payments from borrowers, and LIBOR, which is the basis on which Ludgate pays money to investors. At the time the deal was structured, LIBOR was 17 bps higher than BBR; today it is 85 bps."
Ludgate is backed by a pool of U.K. first-ranking mortgages secured over freehold and leasehold, owner-occupied, and buy-to-let properties originated by Freedom Funding Ltd, which was established in May 2004. In July 2006, all of Freedom Funding was acquired by Merrill Lynch, its ultimate parent. This transaction was Freedom Lending's first securitization of a portfolio of mortgages using the Ludgate Funding mortgage asset-backed MTN program and the first draw on its reserve.