Nationwide’s Mortgage Bonds Help Thaw Asset-Backed Debt Market

Oct. 27 (Bloomberg) -- Nationwide Building Society’s sale of bonds backed by U.K. home loans may help reopen Europe’s $3.3 trillion market for asset-backed debt, which all but shut after the credit crisis caused investors to shun hard-to-value assets.

The 3.5 billion-pound ($5.7 billion) issue from Britain’s biggest customer-owned lender follows a 4 billion-pound transaction by Lloyds Banking Group Plc last month. The yield on top-rated U.K. mortgage bonds has narrowed to 130 basis points relative to benchmarks from 425 in January, JPMorgan Chase & Co. data show. A basis point is 0.01 percentage point.

“It’s good for the European asset-backed securities market to get its second public deal done after the credit crisis,” said Attilio Di Mattia, a money manager at Aurelius Capital Management in Vienna, who bought some of the notes. “There is hope that some banks in continental Europe will tap the ABS market shortly.”

Nationwide’s notes will be issued in three portions, one of which will be used as collateral for a loan from JPMorgan, according to a banker involved in the deal. The so-called class A1 portion was reduced to 1.25 billion pounds from 1.5 billion pounds, the people said.

Housing Slump Eases

Nationwide is issuing the securities amid signs that Britain’s housing slump is abating. Mortgage approvals by the six biggest U.K. banks held at the highest this year, the Bank of England said last week. London home sellers raised prices to a record this month amid a shortage of properties, said Rightmove Plc, owner of the nation’s biggest property Web site.

Nationwide spokesman Roy Beale declined to comment.

The lender’s AAA rated notes are being issued through Silverstone 2009-1, a program set up to package U.K. home loans into bonds. Lenders sell pools of mortgages to investors to transfer the risk of borrower defaults and reduce the amount of capital they’re required to hold as a cushion against losses.

The Silverstone transaction includes 1.6 billion pounds of class A2 floating-rate notes, of which JPMorgan has already committed to buy 1 billion pounds. The notes were priced at 145 basis points over the London interbank offered rate, said the banker, who declined to be identified before the deal was completed.

Silverstone also sold 650 million pounds of class A3 fixed- rate securities, up from 300 million euros planned last week, said the banker. The notes were priced to yield 145 points more than the benchmark mid-swap rate, the banker said.

The transaction was arranged by Barclays Capital, Citigroup Inc. and JPMorgan along with the Swindon, England-based lender.