U.K. lender Northern Rock plans to sell de-linked tranches backed by European residential mortgages in a deal slated later for this month, according to market participants who say it would be the first time a European RMBS deal has been sold with the structure.
So far, the market has been characterized by vertically structured credit enhancement where longer-dated senior tranches are supported by shorter-dated subordinated tranches. But a de-linked structure allows issuers to tailor tranches for rating and maturity and, most importantly. The structure also makes it possible to offer larger subordinated classes, which typically are sold only in small lots and are highly sought after. "De-linked tranches represent the next phase in the commoditization of the ABS market," noted Ron Thompson, head of ABS research at Royal Bank of Scotland in London.
The £4.5 billion Northern Rock deal, out of the Granite series, is being underwritten by Barclays Capital, Citigroup and Merrill Lynch. Officials at the firms all declined comment. David Johnson, head of securitization at Northern Rock, was unavailable for comment before press time.
European investors got their first taste of de-linked tranches in the middle of last year in the credit card market, when credit card issuer MBNA sold de-linked classes.