EMEA Structured Finance Issue: Coventry’s Economic Master Issuer 2020-1

IFR Awards 2020
3 min read
Ross Lancaster

The master’s revival

At one stage during Economic Master Issuer’s journey it looked like the novel master trust structure might not receive the ultimate test of a market sale.

Plans to sell notes in the first or second quarter of 2020 had been blown off course by Covid-19 and the resulting widening of RMBS spreads, while the deal’s originator Coventry Building Society’s access to the Bank of England Term Funding Scheme had further reduced the attractiveness and even the necessity of a market sale.

“At the time we were feeling a bit crestfallen as we had this great Lamborghini of a structure that was likely to be retained,” said John Millward, head of EMEA ABS in HSBC’s structured finance group. “We just decided to keep our ears to the ground and then the moment that we started to see the market turning we were on to Coventry with insight, investor colour and feedback.”

The result was the platform’s debut trade in July, with the £350m 2.51-year Triple A notes priced at 47bp over Sonia – a level that left no new issue premium relative to a secondary curve of traditional master trust bonds. The notes were 3.6 times oversubscribed by the time they were priced via arrangers and leads HSBC and Lloyds.

Existing master trust structures were unwieldy and expensive for many potential issuers. Given the operational barriers, smaller UK RMBS issuers have opted for standalone SPVs in recent years. Economic Master Issuer took an axe to many of those irritations.

The securitisation has one SPV instead of the usual three seen in master trusts, reduced documentation and room to be nimble when adjusting to events like regulatory or tax changes. The issuer can also manage its ratings agency and counterparty exposures more dynamically than in a traditional structure.

“What we managed to create is a format that is more efficient and removes some of the complexities that these master trust structures had lingering around them historically,” said Dmitrij Levitski, a director in Lloyds’ securitised products group.

To improve speed of execution, Economic Master Issuer is built to function as a covered bond-style vehicle. The structure also creates the flexibility to switch between formats, like bullet and amortising notes.

“We wanted to be able to issue in a series and speed up the time to get to market, like our covered bonds,” said Lyndon Horwell, treasurer at Coventry Building Society.

“A covered bond takes less than a month to do, while it would normally take us a number of months to fully execute an RMBS, making certainty of execution of a covered bond so much greater. We wanted to improve on the older master trusts and use some of the simplicity associated with covered bonds and I think we achieved that.”

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