UK Mortgages Limited – Second Transaction
07/07/2016
UK Mortgages Limited
(a closed-ended investment company incorporated in Guernsey with registration number 60440)
The Board of UK Mortgages Limited (“UKML”) and TwentyFour Asset Management LLP (“TwentyFour”) are pleased to announce that the second transaction for UKML has been agreed.
Since UKML’s launch, TwentyFour has sought a mortgage origination partner to facilitate an ongoing flow of mortgage loans that fit the investment policy. Over the past few months, the team has worked with The Mortgage Lender Limited (“TML”) to develop a suite of mortgage products and has signed a multiyear purchase agreement today.
In line with the structure described in UKML’s prospectus dated 23rd June 2015 UKML will again invest in profit participating notes (“PPNs”) issued by a dedicated acquisition company (“Corporate Funding”) which will purchase owner-occupied mortgage loans on an ongoing basis from TML. The initial capital commitment will enable the purchase of £250m of mortgage loan production over a 12 to 14 month period with the intention to deploy fresh capital on an on-going basis.
The portfolio will be created against a set of parameters designed to generate a high quality portfolio whilst achieving a commensurate yield in line with the UKML target. The expectation is for a portfolio of geographically diversified loans with an average LTV of 75% that will use market leading underwriting. TML will be the originator and legal title holder of the mortgages whilst acting as servicer for the mortgage borrowers. The product suite will go live on the 11th July 2016.
To supplement UKML’s funding for the ongoing acquisition of the mortgage loans, Corporate Funding has established a revolving loan financing facility with The Royal Bank of Scotland PLC, available for up to 2 years, thereby providing flexibility on the timing of the securitisation. The transaction’s capital allocation considers the first year of commitment and will be rebalanced over the course of the multiyear agreement. It is expected that the capital usage in the initial 14 months from investment will be around £72 million depending upon securitisation execution, representing the deployment of approximately 30% of UKML’s initial capital raise.
This transaction will establish leverage to a level expected to facilitate a AAA rating of senior securitisation debt when ramped in line with stated objectives. The absolute level of leverage is expected to be lower when compared to the inaugural transaction with Coventry Building Society as a function of credit profile and TwentyFour believes there is a compensating and appropriate risk-adjusted return. The return on the capital invested will vary over time, driven initially by the time required to ramp-up the portfolio, by composition of the actual portfolio and then by the yield on the underlying mortgages. The IRR on the capital allocated to the first year’s origination, over its life, is 9.49% gross to UKML* (assuming securitisation takes place as intended).
As mentioned in monthly updates, TwentyFour is working concurrently on other potential transactions and is increasingly optimistic about the profile of a third investment that is expected to utilise the remaining initial capital. Further updates will be provided as transactions are progressed.
Chris Waldron, Chairman of UK Mortgages Ltd said “The Board is very pleased that UKML is building on the success of its inaugural transaction with a partnership that has been established with longevity and growth in mind. A great deal of work has been completed by all sides considering the different nature of a forward flow arrangement. We look forward to working with the TML team and utilising the remaining capital through a third transaction in due course.”
Trevor Pothecary, Chief Executive Officer of The Mortgage Lender said, ”We are delighted to be working with the team at TwentyFour who have proved to be extremely knowledgeable and excellent partners to work alongside. We see this transaction as the start of a long-term partnership with TwentyFour and look forward to an ongoing successful working relationship.”
Douglas Charleston, Portfolio Manager at TwentyFour said “TML is a new business but has an experienced team behind it, without the legacy issues that some lenders carry. Throughout our engagement with TML, the team has impressed with their thorough approach to building their origination and servicing platform along with a product offering, both of which we expect to bear fruit as the pipeline builds. To have completed a forward flow partnership transaction gives UKML and Corporate Funding a growth engine to evolve with markets, design new products within the investment policy and importantly be more opportunistic when considering future investments.”
Notes:
The Mortgage Lender is a specialist lender based in Glasgow; it operates via the intermediary market and is run by an experienced and proven team with a successful track record of entrepreneurial growth in a regulated environment.
Further information
TwentyFour Asset Management LLP
Ben Hayward
Douglas Charleston
020 7015 8900
Numis Securities Limited, Corporate Broker
Hugh Jonathan
Nathan Brown
020 7260 1000
* TwentyFour's estimate of the potential total return for this investment is based on certain scenario and other assumptions. This and any other references herein to potential future returns or distributions are targets or estimates and there can be no guarantee or assurance that they will be achieved.
