17 June
2016
UK MORTGAGES LIMITED
(A closed-ended investment company incorporated in Guernsey with
registration number 60440)
Investment Update
The Board of UK Mortgages Limited (the “Company”) and TwentyFour
Asset Management LLP (“TwentyFour”) are pleased to present an
update on the Company and progress with further investments.
The TwentyFour portfolio management team remain fully engaged on
a number of prospective opportunities with the aim of fully
investing the Company’s capital in as timely a manner as possible.
As stated previously, transactions are generally subject to
non-disclosure agreements, as full disclosure before final closing
would lead to a loss of competitive advantage. However, we have
endeavoured to provide as much detail as possible on deal
progression.
1 – Term Funding
TwentyFour is pleased to report that the Company has completed
its inaugural securitisation, Malt Hill No 1 PLC. The AAA notes
were issued with a highly competitive coupon of 3m LIBOR plus
1.35%, an improvement on market expectations. The final work on
collateral eligibility with the Bank of England and the ECB is progressing well and
the Company would expect this largely administrative process to be
completed soon.
The public sale of £263.3m AAA-rated bonds was completed, with a
leverage of 6.8x on the IPO proceeds. The process began with a
private syndication process and followed with a publicly launched
deal resulting in five investors taking the full amount. It was
widely reported on newswires and in industry press, and augurs well
for future transactions.
2 – The Mortgage Lender (TML)
TwentyFour has made good progress with regards to the ancillary
requirements for the transaction, with finalisation of
documentation expected to be complete in the coming weeks. As soon
as the agreements are complete, TML is ready to commence
originating mortgages, having already gained FCA licencing for
their business. The origination volume from TML is expected to be
£250m on a pro rata basis.
3 – New Opportunities
TwentyFour is working on a number of potential transactions,
with the caveat that deal negotiations often present unforeseen
challenges and are dependent on a number of factors, not least the
macro environment and internal bank processes. Note that this
pipeline is the most comprehensive that TwentyFour has seen since
the launch of the Company. In order of expected delivery:
- Discussions have commenced on a residual UK BTL mortgage
portfolio and necessary documentation has been signed to receive
data.
- A portfolio of non-conforming mortgages with circa 5% 90+ days
arrears.
- A UK BTL opportunity originated by a challenger bank.
- Introductory discussions have commenced with a regional UK
building society regarding their BTL book.
Factored into all progress is the fact the upcoming referendum
regarding the UK’s future in the EU has become an item of
considerable market stress that may cause some delays in regard to
business readiness to take commercial decisions.
Since the last update, in line with expectations that deal flow
progress is dependent on macro and company specific dynamics, two
transactions have been put on hold by mortgage originators until Q4
and 2017 respectively. Despite this, the pipeline is very strong
and the team are working at full capacity on delivering further
transactions.
4 – Target Return*
Following securitisation of the Coventry portfolio, the expected scenario
based IRR of the transaction is c8.27% gross of fees. This is in
line with the Company’s original stated expectation of an IRR
return between 7-10%.
5 – Resource
A number of changes have been made to TwentyFour’s internal
resourcing with regards to UKML, to enhance investor interaction
and communication on the fund. To this end, an additional partner
of the firm is engaged to act as a bridge between investors,
transaction team, board and operations. There are now six
members of the ABS team focussed on delivery of this product for
shareholders.
*The estimate of the potential total return for this investment
is calculated across certain scenarios and subject to certain
assumptions, no representation is made as to the reasonableness of
the assumptions made within or the accuracy or completeness of any
modelling. This and any other references herein to potential future
returns or distributions are targets and not forecasts and there
can be no guarantee or assurance that they will be achieved. The
information in this document is not intended to predict actual
results and no assurances are given with respect thereto.