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‘Growing confidence’: Linklaters and A&O lead on biggest post-crisis RMBS transaction

Magic Circle firms Linklaters and Allen & Overy were instructed on the £6.1bn securitisation of UK mortgages by private equity house Cerberus Capital Management in what is the largest residential mortgage-backed securitisation (RMBS) since misuse of the product brought about the financial crisis in 2007.

The bonds, which have been purchased by institutional investors, are backed by a pool of mortgages from the legacy book of NRAM, the former Northern Rock mortgage business which was nationalised in 2008.

Cerberus Capital Management picked up the mortgage portfolio in November last year for £13bn in what was the biggest-ever disposal of financial assets by the British government. The transaction consists of seven rated tranches of secured mortgage loans, the largest of which is a £4.7bn tranche rated AAA by Standard & Poor’s.

London-based structured finance partner Adam Fogarty (pictured) and New York capital markets partner Caird Forbes–Cockell led Linklaters advice to two the two Cerberus subsidiaries, Cerberus European Residential Holdings and FirstKey Mortgage, which packaged the bonds.

Fogarty said: ‘This is a significant transaction in what have been relatively quiet markets for primary issuance this year, and shows that there remains strong demand for high-quality securitisation in Europe.’

Allen & Overy advised Morgan Stanley as arranger and the joint lead managers of the securitisation. The team was led by securitisation partners Sally Onions and Salim Nathoo, with support from UK co-head of tax Chris Harrison and New York-based securitisation partner John Hwang.

Of the 125,000 loans worth £13bn Cerberus purchased late last year, £12bn consisted of secured residential mortgages, while £1bn was made up of unsecured loans sold by Northern Rock as part of the so called “Together” deals – which gave out mortgages with a loan to top it up. The private equity house has already sold £3.3bn of the assets it acquired from the UK government to TSB Bank.

Onions added: ‘The message this transaction sends is really important, not simply because of its sheer size, but rather how it underlines the growing confidence in the asset-backed securities market. Market participants will be reassured by its success and we expect to see other non-bank entrants come to the securitisation market over the course of the year.’