Cerberus Capital Management hired Morgan Stanley to arrange what could be the largest sale of asset-backed debt in Europe in more than nine years, according to people familiar with the matter.
A significant portion of the £6.2 billion ($8.8 billion) of new bonds in the securitization known as Towd Point Mortgage Funding 2016-GR1 have been pre-placed with investors, said the people, who asked not to be identified because they’re not allowed to talk about it. The bonds, which are expected to price on April 8, are backed by mortgages from failed U.K. lender Northern Rock Plc, the people said.
Cerberus is selling the notes after it acquired the collateral at the end of 2015 in the biggest-ever disposal of financial assets by the British government. The sale brings to an end months of speculation by investors in Britain’s £72 billion residential mortgage-backed securities market about what Cerberus would do with the loans.
“It’s a huge deal, and the fact that such a large volume of U.K. mortgage bonds can be sold shows there is strong demand for high-quality securitizations,” said David Covey, Nomura Holdings Inc.’s London-based head of European ABS strategy. “That said, the size belies the fact that the investor base remains thin, as it’s likely a substantial portion of the deal was pre-placed with a few large investors.”
Tom Walton, a spokesman for Morgan Stanley in London declined to comment on the transaction. An official for Cerberus declined to comment on the sale.
Cerberus will sell the most European asset-backed securities to investors in one go since January 2007 when Northern Rock issued £6.1 billion of bonds, according to Nomura’s Mr. Covey. Cerberus will retain 5% of the notes to comply with regulations introduced since the financial crisis, meaning only £5.9 billion will be available to investors, according to the people.
The U.S. private equity firm beat Blackstone Group LP, CarVal Investors and banks including JPMorgan Chase & Co. to buy £13 billion of mortgages from U.K. Asset Resolution Ltd., which manages former Northern Rock loans on behalf of the state. The U.S. private equity firm immediately sold £3.3 billion of the mortgages to TSB Banking Group Plc, the lender acquired by Spain’s Banco de Sabadell SA.
The Northern Rock loans were previously packaged into a securitization vehicle called Granite, which was unwound in December and January after Cerberus acquired the assets. Northern Rock funded about £50 billion of U.K. mortgages through the Granite notes, becoming Britain’s fifth-largest home-loan lender before succumbing to the first bank run in the country in 140 years.
Bank of America Corp., Credit Suisse Group AG, Lloyds Banking Group Plc, Morgan Stanley and Natixis SA are joint lead managers of the Towd Point transaction, according to the people familiar with the deal. HSBC Holdings Plc and Wells Fargo & Co. are co-managers.