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Capital Home Loans goes on the road to sell first UK securitisation backed by Limited Company loans Back  
In September Capital Home Loans, a subsidiary of Irish Life & Permanent since 1996 which specialises in providing Buy to Let loans and home loans to predominantly self-employed people, launched its latest securitisation issue under its Auburn Securities programme, the ?450 million, Auburn 5. This was an unusual deal as not only was it 100 per cent Buy to Let; the transaction was comprised entirely of Limited Company loans, a first in the UK, writes Bob Young, and the transaction was 2.4 times oversubscribed.
In early September, Capital Home Loans and Irish Life and Permanent released the latest prime UK residential mortgage backed securitisation from the Auburn Securities programme established in November 1998.

As a group, we have experienced rapid growth in the banking balance sheet over the last decade. Wholesale funding has grown in importance to us over this period, and we seek to diversify our funding sources. In addition to securitisation, we raise funds from interbank, corporate deposits, US commercial paper, US extendable notes, Euro commercial paper and debt issuance under our medium-term note programme. Securitisation is a funding vehicle that we are likely to use again in the future.
Bob Young

This was an unusual deal as not only was it 100 per cent Buy to Let; the transaction was comprised entirely of Limited Company loans, a first in the UK.

The last Auburn Transaction (Auburn 4) of ?1bn in 2004 had traded very well, exceeding expectations. Auburn 4 consisted of 75 per cent Buy to Let and 25 per cent home loan and had no Limited Company borrowers.

We decided at the outset that we would continue our policy of meeting potential investors via a road show. This was particularly useful on Auburn 5 as it gave us an opportunity to explain directly to potential investors the characteristics of the loans.

Who is Capital Home Loans?
Capital Home Loans Limited has been a wholly owned subsidiary of Irish Life and Permanent since October 1996. We are a centralised lender based in Fleet, Hampshire specialising in Buy to Let loans and home loans to predominantly the self-employed.
'We started with presentations in Dublin, a few one-to-one meetings and a lunchtime presentation at The Merion Hotel'.

One of only two UK lenders to win the prestigious Financial Advisor 5 star award six consecutive years, we take great pride in a lending operation that has low arrears, coupled with tight management and financial controls (cost income ratio below 30 per cent).

Since Irish Life and Permanent acquired CHL, the book has grown from ?280 million to ?3.2 billion, and including Auburn 5, have ?1.6 billion in securitisation programmes.

Auburn 5
With an established securitisation programme, we already had a target market of investors who were familiar with CHL and appreciated the quality of assets we originate.

Auburn 5 consisted of 3,770 loans amounting to ?450 million, all of which are fully performing (there are no losses with any of the previous Auburn deals).

All of the loans meet CHL’s stringent underwriting process with the additional benefit that all directors or shareholders with 20 per cent+ interest in the company have to supply personal guarantees for the full loan. As this typically will involve three people, it means that should a loan default we have more access to recovery than with a normal loan.

The performance of the Limited Company Buy to Let book is superb. Out of 4,200 well-seasoned loans there are only three loans that have arrears of three months plus, a key indication of the quality of this transaction.

The lead managers, Merrill Lynch and BNP Paribas, arranged the diary for the roadshow. As usual the planning was meticulous and although it required a few early starts, the logistics were all in the right place at the right time.

The road shows started immediately after the UK Bank Holiday on August 30th and ran through to September 2nd, although a number of additional meetings were held with investors who had picked up on the transaction and were unable to commit to meetings during the road show week. The launch date was September 5th and final settlement had been set for the September 23rd.
Many of the investors we met on the road show were known to us, however there were some new faces that were not familiar with the Auburn Programme.

We started with presentations in Dublin, a few one-to-one meetings and a lunchtime presentation at The Merion Hotel. I’m told that lunch was good, however I was too busy explaining the UK mortgage environment and the merits of Auburn 5.
'The road shows lasted for one week, predominantly in London'.

In common with all our presentations, we were faced with intelligent, considered questions with often a question from left field that we didn’t expect, but which normally we were able to handle there and then.

In tandem with the road show, we had a dedicated resource at head office supplying answers to additional questions that investors had with regards to CHL and the performance of the pool offered.

This together with a willingness to invite potential investors to Fleet to ‘kick the tyres’ and see what they were considering investing in had a very positive impact on the transaction.
The road shows lasted for one week, predominantly in London. Tiring as always, but well worth the effort as the deal was oversubscribed 2.4 times at the final pricing levels, with 52 investors participating over 12 countries.

All in all this was a well prepared and targeted road show, combined with excellent performance of Auburn 1 – 4 resulting in the tightest pricing to date across all asset classes. Annual day one spread cost of Auburn 5 amounted to 21bps, 5 bps inside the cost of Auburn 4.

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