UK Mortgages Limited – Second Transaction
7 July 2016
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.