Germany’s Rheinhyp has convincingly kept its lead this year in the covered bond sector with a string of deals put together by a dedicated structured Wnance team that has only been in place for just over a year. Rheinhyp’s securitization of its European commercial mortgages across several countries broke new ground in Europe’s cross-border structured Wnance markets. Even though the legal hurdles for such a deal might have proved insurmountable, Rheinhyp and Barclays Capital together found a structure that should ignite interest from other asset-backed issuers to use similar synthetic structures to place pan-eurozone portfolio deals into the market.
Says David Wells, director of high-yield capital markets at Barclays Capital in London: “This deal took more than a year to put together and both Barclays and Rheinhyp worked very hard on the structure. It took a long time, but it certainly paid off.”
The innovative synthetic cross-border structure packaged together 99 commercial mortgages in Austria, France, Germany, the Netherlands and Spain and gives investors access to credit risk, while Rheinhyp remains responsible for servicing the loans. The issuer managed to skirt round the legal barriers involved in putting together a multi-jurisdictional deal by leaving the loan portfolio on the issuer’s balance sheet. A special purpose vehicle, Europa, was then created to guarantee the portfolio against non-payment and this vehicle then issued e1.345 billion in the bond markets. The proceeds of this were invested in Rheinhyp’s own Pfandbrief bonds and MTNs which will be held by Europa to back its guarantee to Rheinhyp. Once the rating agencies had given their blessing to the deal, investors responded very positively to the diverse nature of the credit portfolio.
Apart from Morgan Stanley’s prior transaction that packaged together mortgages from the UK and Ireland, this is the Wrst European securitization to bundle assets from more than one country into a single deal and it marks an important step in the development of a true eurozone market.
The reasoning behind the deal was simple. Rheinhyp’s pan-European lending business is growing, and fast-consuming capital, given the 100% weighting attributed to these assets under these guidelines. This has led the mortgage bank to lay oV some of its existing portfolio in the markets in order to free up the equity needed to underwrite more new loans. The synthetic nature of the transaction also appealed to investors because of the removal of many risks associated with traditional commercial mortgage-backed security structures. Rheinhyp now intends to concentrate on loan origination and servicing.
Rheinhyp has in fact been breaking new ground since it issued the Wrst German mortgage-backed security in 1995, which prompted the German banking regulator to prepare guidelines for German bank securitization issues. More recently, Rheinhyp also won plaudits for getting away a 10-year e3 billion global Pfandbrief after a prolonged period of unfriendly markets. By watching the markets closely for the Wrst sign of an upturn, Rheinhyp managed to issue the deal at a time when many mortgage banks had been forced to the sidelines. Says Rüdiger Luchmann, Rheinhyp’s head of treasury and capital markets: “After announcing our plans in December, we were confronted with a diYcult market in which investors were concentrating on the shorter end of the yield curve. At the time, nobody wanted to issue into this segment. In the end it paid oV to wait and the markets respected the fact that we were willing to wait.” When the deal Wnally came at the start of March, it was the Wrst 10-year Pfandbrief deal for nearly six months.
