PTSB set to raise €500m for new mortgage lending
PERMANENT TSB is set raise €500m for mortgage lending in a deal that could reopen the "securitisation" market and boost the availability of funding for new mortgages.
The state-owned lender has hired US investment bank Morgan Stanley to manage the deal. It will kick off a marketing "road show" for investors on Monday, with the deal expected to price the following week.
It comes as analysts warned that the three state-backed banks, including Permanent TSB, will lose €151m in income thanks to the latest interest rate cut by the European Central Bank (ECB).
Bank of Ireland, AIB and Permanent TSB will suffer, according to Merrion Stockbroker Ciaran Callaghan, because the ECB cut has to be passed on to those with tracker mortgages.
Banks are already losing money on tracker loans because it can cost a lender more to fund the loan than it takes in income.
The new Permanent TSB deal will be backed by a pool of all -Irish, owner-occupied home loans. The loans are a mix of new and older lending but are all "performing", meaning none of the loans is, or has been, in arrears, for longer than 30 days.
The deal will be the first residential mortgage backed securitisation (RMBS) by any Irish bank since 2007, and the first from Permanent TSB since 2006.
Analysts said the planned deal – which will be called Fastnet Securities 9, is a surprise, but said there is strong appetite for mortgage-backed deals in the market, helped by scarcity of supply from the UK in particular.
The covered bond market, another source of finance for mortgage banks, reopened to the Irish banks a year ago. Bank of Ireland raised €1bn with a covered bond this week.
Securisiation deals differ from the Bank of Ireland transaction. Securisation deals are fully segregated from the bank that issues the debt, so the investor only has to consider the collateral when they invest in the RMBS bonds, and in theory would be protected even if Permanent TSB was to go bankrupt.
Crucially, the lenders are also drawn from a different pool than investors in a covered bond, so a deal opens up a new source funding.
Securitisation became controversial during the financial crisis – when US banks in particular suffered because of problems in securitised pools of "sub prime" home loans.
However, bankers argue that the process is the best way to fund a liquid and relatively inexpensive mortgage market.
Permanent TSB is offering significant "credit enhancements", including putting up some cash up front, which effectively make the deal an ultra- safe investment.
That is needed because it is the first deal of its kind in more than half a decade. But it also reflects the fact that the bank cannot get a coveted AAA credit rating for the bonds, because rating agencies have a "country ceiling" on Irish debt linked to the Government's credit rating.
The highest-ranked bonds in the new deal will be rated AA+/AA by Standard & Poor's and Fitch.
RMBS deals are structured as layers of bonds, all backed by the same collateral, but investors earn different rates of interest based on the level of risk they buy into.