Enra credits planning for latest Elstree success
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Enra credits planning for latest Elstree success

Aerial view of Calderwood village housing estate on the outskirts of East Calder, West Lothian, Scotland.

‘You can’t rely on that last three months to save you if you haven’t done your fundamental thinking’

Work for Enra’s RMBS deals begins more than a year in advance, the lender’s funding solutions director, Qasim Jafri, and CFO, Emily Gestetner, told GlobalCapital after the latest deal Elstree 4 attracted an impressive 21 investors.

“The Elstree 4 portfolio was the lowest LTV from our shelf, with comparably high post-swap margins relative to what else is out there,” Jafri said. “Whilst partial credit goes to the structuring we did, ultimately it was the quality of originations the team put on balance sheet over the past 12-18 months.

“About three months before a trade is when you start looking at market data, secondaries and getting closer to your syndicates. You can’t rely on that last three months to save you if you haven’t done your fundamental thinking before that. The first nine months of that 12 month range really set up the last three months.”

Gestetner also praised the quality of Enra’s lending. “We have an excellent, performing book, which is a credit to our underwriting and in-house servicing,” the CFO said. “We believed that performance history would assist when we went to market.”

The deal was ready to go at the start of the year, but Enra waited to gauge market conditions. Charter Court’s PMF 2024-1 was priced at 98bp over Sonia on January 24 and Enra was in the market the next day.

“We had formulated our strategy [for Elstree 4] well before Christmas, but we wanted to see a bit more stability of demand before we pressed the button,” Gestetner said. “We wanted to see a trade before us that gave a view on the depth of the market.”

Keeping options open over timing is typical of Enra’s approach to marketing deals. “The planning for a RMBS deal will begin a year in advance, if not longer,” Gestetner explained. “We will look at origination expectations, calls on existing deals and supportive issuance windows around the year. For example, historically, you don’t want to securitize in August or December. What we then do is make sure we’re ready well in advance, so if the market is conducive, we can press the button.”

The key to keeping those options open is to maintain a diverse funding base and manage liquidity. “I never want to be in a position where I’m under pressure to do a trade,” Gestetner explained. “That’s why we have to be prudent in how we manage liquidity. It’s when you’re under pressure that you can be forced to do a bad trade.”

To mix or not to mix

Enra only securitizes its term mortgage products, but does a number of types of lending within that category. It is an active lender in buy-to-let, owner-occupied and second charge mortgages. As such, the composition of the deal is a crucial part of the planning process.

“The first decision is what kind of asset mix you want to take out,” Jafri said. “So far, it’s been the case that we’ve been taking out mixed asset trades. Depending on the ramp speed and the origination profile, you could break that up into single asset classes or keep them together. Ultimately the business will remain flexible in its thinking to achieve our end goals.”

The Elstree 4 pool was 41% first lien buy-to-let, 9% second lien buy-to-let and 50% second lien owner-occupied. Splitting the loans into separate deals could help attract more investors, but both Jafri and Gestetner identified advantages to keeping them combined.

“If you were to split up the pools and have a first charge buy-to-let or owner-occupied deal you could aim for [a Simple, Transparent and Standardised (STS) label] or attracting a different layer of the investor base,” Jafri said. “Currently we like how the mixed pools behave for us and we believe offer compelling reward versus risk.”

“There are some strengths to having second charges in the portfolio,” Gestetner added. “They have higher post-swap spreads and higher prepayment rates which means the transaction deleverages quicker.”

Deciding the pool composition though is just the start of what goes into each trade. “You cannot necessarily control what the market will be like when you go out, but you can make sure you’ve done all the fundamentals right,” Jafri said. “You have to think about arrangers; joint lead managers; hedging; about ratings agencies; about what sort of capital stack you want. You have to do so in such a way that you maintain flexibility for your trade.”

Sticking around

Elstree 4 is the latest deal from a firm that remains committed to RMBS for the long run. “Enra is planning to be a continued issuer in the RMBS space,” Jafri says. “You need keep your benchmark issuances going and hopefully keep investors happy and engaged.”

Indeed, it was a deliberate choice to offer the senior tranche to investors, an approach which contrasts with some previous deals.

“We wanted to support our investors,” Gestetner said. “Many of them had said everyone is preplacing class ‘A’ notes, leaving for reduced investment opportunities at the senior part of the stack.”

That approach was vindicated by the execution, with the seniors tightening from initial pricing thoughts of 120bp over Sonia all the way to 112bp.

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