Excess Spread is our weekly newsletter, covering trends, deals and more in structured credit and ABF.

Sweet release

The last year has brought a surge in UK equity release RMBS transactions, admittedly from a low base. This time last year, Waterfall Asset Management closed its Lifetime Mortgage Funding 1 transaction, securitising a portfolio of Aviva loans, but in the past six months we’ve had Summerhouse 1, Highcrest SPV 1, and now EQR 1, announced fully preplaced by Citi this week.

Equity release securitisations were common before that, but rarely hit the tapes. They were internal-only deals, structured on life insurer balance sheets to optimise the capital treatment of the (very large) equity release holdings at the likes of Rothesay, Just Group, Phoenix and PIC.

Packaging the loans into internal securitisations meant that the lifers could turn much of the capital structure into tranches which were eligible for the matching adjustment, which gives a massive boost to capital efficiency under Solvency II (and now UK Solvency).

UK regulators have been keen to monitor this closely, and revised their expectations this year, laying out their belief that insurers should structure their internal deals in line with how a rated transaction would come out.

The three deals in H2 this year have all seen the debt tranches privately placed, likely with insurance accounts, and the ratings have been published (previous internal deals may have received private ratings).

What’s particularly interesting, though, is the cast of sponsors involved.