SCI CRT Awards Issue Oct 19

Transaction of the Year
TRANSACTION OF THE YEAR
WINNER: SYON SECURITIES 2019
Lloyds Banking Group’s
synthetic UK RMBS Syon
Securities 2019 was motivated
by prudent risk management
as part of the bank’s broader
plan to support the UK economy, rather
than potential regulatory capital benefits.
However, Syon’s innovative use of a
capital relief structure to achieve those risk
transfer aims, combined with the deal’s
scalability for the issuer and repeatability
for other UK mortgage lenders gives it
potential benchmark status and makes it
SCI’s Transaction of the Year.
Lloyds Bank Corporate Markets (LBCM)
Securitised Products Group acted as sole
arranger and lead manager for Syon, a synthetic
securitisation of a UK owner-occupied
residential mortgage loan book originated by
Bank of Scotland under the Halifax brand.
The £1.07bn reference portfolio comprises
5,674 prime repayment mortgages with LTVs
greater than 90%, originated between October
2018 and June 2019. The non-replenishing
transaction provides credit protection for
seven years, with a 2.5-year tail period, subject
to a 10% clean-up call.
“
OVERALL, THE SYNDICATION
PROCESS WAS VERY MUCH AN
EDUCATIONAL ONE, GIVEN THE
ARRAY OF INVESTORS INTERESTED
”
In aggregate, £150m of credit-linked notes
were placed with five investors from both
Europe and the US, comprising a mix of those
familiar with capital relief trades and those
familiar with RMBS and mortgage assets.
During marketing, Lloyds had opened its data
room to 37 accounts and conducted 17 due
diligence sessions.
Overall, the syndication process was very
much an educational one, given the array
of investors interested. Typical cash RMBS
investors were sometimes unfamiliar with
synthetic structures, some were able to use
GSE credit risk transfer deals as a comparable
and regulatory capital investors had typically
not considered transactions featuring
residential mortgages for some time, so had to
re-familiarise themselves with the asset class.
Syon is an economic hedge, including a
modified pro-rata amortisation schedule, where
the protection is reduced at a rate slower than
the amortisation of the portfolio to ensure
adequate coverage for the increased loss density
expected towards the end of the protection
period. Additionally, the transaction allows
for the removal of loans that are considered
‘de-risked’, as a result of customer payments
and house price inflation, and which no longer
contribute to the relevant risk metrics.
As noted above, the transaction does
not provide Lloyds with regulatory capital
benefits, thanks to the minimum risk weight
c.6.5%
retention by
Lloyds of
underlying
exposures
£1bn
Maximum
Reference
Portfolio
Notional
Amount
(c.93.5%
vertical slice)
Mortgage
Loans
c.£1.07bn
(incl. vertical
retention)
100%
15%
0%
(4)
Senior
Tranches
(retained)
(1)
SPV
(4) (5)
(1)
(2) (3)
(1) CLN Proceeds
(2) Junior Protection
(3) CLNs
(4) Reimbursement of
realised losses
(5) Redemption of CLNs
£150m Credit
Linked Notes
(Protected
Tranche)
sold to five third
party investors
Deposit
Account
Source: Lloyds
12 SCI Capital Relief Trades Awards | October 2019 www.structuredcreditinvestor.com