Who you are matters a bit, but not as much as when you issue
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Who you are matters a bit, but not as much as when you issue

Copplestone, Olly cartoon for GC 28Mar24 RMBS issue timing.jpg

Equifinance set to show the benefits of waiting in an ABS market that has taken to rushing in

Conventional syndicate banker wisdom holds that the earlier you hit an issuance window, the smoother your execution. Some types of clients have traditionally paid more heed to this than others, and European securitization issuers have not always been the most forthcoming of borrowers.

After two years of painful experience, these issuers have largely acquired a new decisiveness this year, and have flooded the market with so many deals that investors say they’re running out of time to do the due diligence.

Yet, as frustrating as this might be for bankers, this week brought a stark reminder that, in a rallying market, issuers are often best served by ignoring advice to print as soon as the money is there. Sometimes, the best pricing is actually achieved by being choosier over timing.

In January one of the UK’s largest non-bank mortgage lenders, Together, placed a second lien residential mortgage securitization, with the senior notes going to BNP Paribas and Citigroup, paying 150bp over Sonia.

This week debut issuer and UK second lien specialist Equifinance is out with a deal and has set initial price thoughts on the class ‘A’ notes at 120bp to 125bp. Save a disastrous turn of events, Equifinance will land well inside where its more experienced peer did.

Clearly, Together was not prioritising spread, but rather minimising execution risk. It therefore preplaced the seniors, so a comparison with Equifinance is not like for like. Yet even on the publicly marketed mezz tranche, Equifinance‘s IPTs are slightly tighter than Together's.

All that despite the obvious inferiority of its collateral. Over a quarter of the Equifinance pool has loan to value ratios of over 80%, compared to well under 1% for Together.

The contrast is equally clear-cut if you look at the number of borrowers in greater than one month arrears: for Equifinance 9.4%, versus 1.2% for Together, according to the DBRS presale reports.

This is not just happening in UK second charge mortgages.

Across European securitization, sharp tightening since December has enabled riskier issuers, coming to market now, to price deals very close to where more prime rivals clinched transactionns just two months ago.

To benchmark all this tightening, look to the prime UK RMBS market. Lloyds and Santander kicked off the year by printing five year deals at 55bp over Sonia. Last week the market’s newly most nimble issuer, Nationwide, sold a similar tranche at 48bp.

You can’t always time the market to perfection but, if conditions remain kind, the right approach might not be as simple as rushing to get out first.

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