Holmes under the Clamour
26 September 2017 by Rob Ford
It’s the last week of September and the kids are now all back at school and financial markets have fully reopened since the summer lull.
Back in those quiet, albeit far too brief, days of summer, we wrote that the impending end of the Term Funding Scheme (TFS) in the UK might lead in the medium-term to a much-needed pick-up and return to a more regular issuance of prime, high-street bank RMBS, and we expanded on this in a second article Prime please! It may be a little too early to say that our prayers have been answered already, but with a second prime UK RMBS deal in the market in less than a month things are definitely looking up.
Last week, Virgin Money sold c.£850m equiv. of senior notes from its “Gosforth” prime RMBS programme into the market. This was their 9th RMBS deal since taking over the “good bank” assets of the former Northern Rock back in 2010, but their first since April 2016 (and therefore since the Brexit vote and the subsequent introduction of the TFS).
Yesterday, Santander UK (formerly Abbey National) made a similar move, announcing a new deal from their “Holmes” prime RMBS programme – their first since May 2016. This deal is currently expected to be a little smaller at c. £400m but final sizes won’t be determined until demand has been fully assessed. The Gosforth deal was heavily oversubscribed so if Holmes attracts similar demand then there may be an incentive to upsize.
Whilst Virgin also exploited international investor demand by creating a 2-year USD denominated tranche along with a 5-year GBP tranche, the Holmes deal will sell GBP notes only, but also with 2-year and 5-year maturities. A different recent Santander auto-loan deal did sell USD notes, though; so it’s interesting to note that UK issuers are already looking to tap overseas as well as domestic demand – a sure sign of increased issuance ambitions.
It’s clearly early days to speculate that the heady days of prime UK RMBS issuance are back – in 2006 the high street banks issued almost £80bn equivalent of senior notes according to Bloomberg, so there’s a long way to go – but the level of enquiry we’ve seen from arrangers as to potential appetite for UK prime RMBS going forward certainly points to a gradual and welcome return for the sector.
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