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Fresh 'Start' for Irish securitisation market Back  
Start Mortgages, the specialist mortgage lender, has transacted Ireland’s first securitisation of non-conforming Irish residential mortgages. Niall Corish, chief financial officer of Start, talks to Fiona Reddan about the transaction.
In April, Start Mortgages, the specialist mortgage lender, closed the first ever securitisation of non-conforming Irish residential mortgages. The securitisation transaction involved the issue of ?370 million of bonds by a special purpose company, Lansdowne Mortgage Securities No. 1 plc, to capital markets investors backed by the cash-flows anticipated from a portfolio of such mortgages.

Non-conforming mortgages are mortgages provided to borrowers who, for various reasons, do not qualify for mortgages from mainstream banks and building societies.

Start was established in 2004 by five former employees of GE – David Ingram, Niall Corish, Dermot Nutley, Jim Aylmer and Paul Murphy - and is majority owned by UK specialist mortgage provider, Kensington Mortgages, with the minority shareholders being the management team. Kensington is the UK’s largest provider of mortgages to borrowers that fall outside the lending criteria of traditional lenders.
Click for large image...
Landsdowne Mortgage Securities Deal Overview

The firm is dedicated to the broker channel, and is looking at the emerging packager channel, which Corish believes has potential in Ireland. Start currently employs 80 people in its headquarters in Clonskeagh, and hopes to grow this to 100 by the end of 2006. Start outsources its mortgage administration to HomeLoan Management, based in Derry, Northern Ireland.
When it came to determining its funding strategy, there was no question that securitisation would be Start’s main form of raising capital. Kensington Mortgages.

‘When we signed the deal with Kensington, one of the key attractions was the firm’s treasury expertise,’ says Corish. Kensington’s strategy for funding is to raise money via warehouse lines in the short-term, with a view to periodic securitisations to empty warehouse lines.

Kensington has securitised over ?10 billion in residential mortgages since the start of its Residential Mortgage Securities (RMS) programme, in 1996, including two tap issues of the RMS programme, and the inaugural Money Partners Securities (MPS) deal. MPS is part-owned by Kensington, and also offers specialist mortgages. LMS 1 is the twenty sixth securitisation transaction for Kensington.

LMS 1 is the first transaction in Start’s new RMBS programme, and the firm expects to go back to the market for a similar amount in 6-8 months. ‘The timing of the next deal depends, to some extent, on the timing of the other securitisation programmes undertaken within the Kensington Group’.

Transaction in brief
• First ever Irish non-conforming mortgage securitisation
• Strong non-conforming pool characteristics
• All first charge, owner occupied
• Low WALTV of 62.48 per cent
• Less than 20 per cent self certified
• 100 per cent repayment mortgages
• Reserve fund initially equal to 65 per cent and builds to 100 per cent through excess spread trap
• Liquidity facility sized at 7 per cent provided by Barclays Bank plc

The roadshow to sell the transaction took the team to Dublin, London, Paris, Vienna, Frankfurt and Amsterdam, where they pitched to 60 investors. Although no Irish investors took an allocation in the deal, the deal itself was over-subscribed at all levels.

‘The positive response from investors bodes well for the programme’s future,’ says Corish, who added that the bulk of the paper was over-subscribed. Another plus of the deal was the pricing, and Corish said, ‘from our point of view we achieved a very good price’.

Start got the three rating agencies – Standard & Poor’s, Moody’s and Fitch - on board for the transaction, and this was the most difficult thing about the transaction said Corish. However, he believes that this sends out a strong signal to the market, and is ‘quite a fillip’ for the firm, who were keen to get these ratings as they believe that this structure will work in future transactions.
Barclays Capital arranged the deal, KPMG provided the tax advice, and McCann Fitzgerald were the legal advisers.

Fergus Gillen, a capital markets partner at McCann FitzGerald, said, ‘This transaction is very encouraging for Irish mortgage lenders as it shows that the capital markets have significant appetite and capacity to fund mortgage lending in this country. The transaction was rated by all three major international rating agencies (Standard & Poors, Moodys and Fitch) and priced extremely well’.

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