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160

Holmes (19%)

Mound (3%)

140

Granite (28%)

Permanent (20%)

120

Lothian (3%)

Gracechurch (7%)

100

Arran (5%)

Fosse (3%)

Arkle (8%)

Brunel (4%)

80

Pendeford (1%)

Global Securitisation and Structured Finance 2008 I Re-visiting UK mortgage master trust structures

Figure 1: UK mortgage master trust balance outstanding

£ billion

60

40

20

2002 Source: Deutsche Bank

2003

2004

2005

2006

2007

2008

type. An example of this is Granite 2007-2 2C2, which is Granite 2007 issue 2 series 2 class C tranche 2, which is euro-denominated, BBB-rated and has a three-year weighted average life.

Figure 2: A simple master trust structure

Master trust

Seller’s share

(issuer)

Investor’s share

ABS notes (Series A, B, ...) Capital markets

Source: Deutsche Bank

Seller share of trust property

Investor share of trust property

Issue

Principal

proceed

and

Trustee

Cash

Seller

(Initial) Portfolio

In 2005, the UK prime RMBS market took one step further forward with the introduction of the first de- linked master trust in the United Kingdom (Granite Master Issuer), backed by the same pool of mortgages as the original structure, but requiring a second ‘funding’ (see Figure 3). ‘De-linked’ refers to the fact that it is possible to issue individual tranches rather than the full capital structure as long as following the issuance of each tranche – according to the rating agencies’ requirements – there remains sufficient credit enhancement for each class of bonds. The term ‘master issuer’ refers to a shelf issuance programme, which is familiar to many investors from medium-term notes programmes and is both time and cost effective. In theory, both the ability to issue advance issuance of subordinated bonds followed by subsequent independent issuance of senior notes and the advantage of using a shelf issuance programme enable a quicker response to reverse enquiries. This has yet to materialise in a way that has been common in US credit card asset-backed securities de-linked trusts, however.

162

Global Securitisation and Structured Finance 2008

Deutsche Bank

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