DEUTSCHE BANK'S MORTGAGE SECURITIsation proved a landmark deal
for the German asset backed market.
Not only was it by far the largest and most widely distributed bond deal from the sector to date, but it demonstrated that Germany's leading bank is committed to securitisation as a key balance sheet management tool.
Launched via special purpose vehicle Haus 1998-1, the DM1.4bn Euro/144A bond proved a runaway success after roadshows across Europe and the US.
"We could have sold the entire issue on either continent," said Tamara Adler, head of Deutsche's European securitisation group.
KV Prabhakar, head of European mortgage trading at Deutsche in London, said: "Buyers came at the bonds from all angles - some were regular floating rate investors, some wanted Deutschmark exposure; others liked the first chance to buy pure German residential mortgages, or were attracted by our name."
Deutsche used a sophisticated passthrough structure familiar in the US market but virtually untried in Europe. Haus issued bonds to the full value of the collateral, and securitised all the excess spread in inverse floating rate interest-only strips, rather than using it for credit enhancement. The unrated subordinated 'B3' tranche will absorb any credit losses.
"The 'B3' tranche was oversubscribed too," said Prabhakar. "It is a first loss piece, but the mortgages have an average seasoning of 26 months and none of them has ever been in arrears."
Haus 1998-1 marks a new stage in the maturity of the European asset backed market - both in the strength of investors' demand for exotic tranches, and in the arrival of the ultimate heavyweight German bank.
|Tranche||Amount||Moody's/S&P/DCR/Fitch IBCA||Average life (yrs)||Coupon|
|A-IO||DM1.278bn||Aaa/AAAr/AAA/AAA||4.1||interest on loans minus interest on A1 notes|
|B-IO||DM98.3m||Baa2/BBBr/BBB/BBB||8.3||interest on loans minus interest on B1 and B2 notes|
|B3||DM28.1m||unrated||8.3||interest on loans|
|A1 tranche amortises from scheduled and unscheduled principal; B tranches receive scheduled principal only.Expected to mature through a 10% clean-up call at par. Legal maturity: May 2035.|