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Coventry launches £1.4bn RMBS to access more FLS funds

Coventry Building Society has launched a £1.4bn securitisation which it intends to use as means of accessing more cheap funding from the Government’s Funding for Lending scheme.

The bond is called Mercia no.1 and is made up of just under 14,000 UK buy-to-let loans originated Coventry’s subsidiary Godiva Mortgages, with a current average LTV of 48 per cent. Around 80 per cent of the pool is made up of interest-only mortgages.

It contains two A notes, both of which are backed by £718m of mortgages. The bond has been given a AAA rating by rating agencies Fitch and Moody’s.

The issue is not open to public investors but instead will be placed with the Bank of England so Coventry can access more funds from the FLS scheme, which is currently a cheaper source of funding for lenders than the wholesale markets.

Under the scheme, the Bank of England will lend UK Treasury bills to lenders for up to four years for a 0.25 per cent fee per year, increasing by 0.25 per cent for each 1 per cent fall in net lending to a maximum of 1.5 per cent.

Lenders deposit collateral with the BoE as a security so they can access the cheap funds. Each lender can access up to 5 per cent of its existing stock of loans to SMEs and households and are incentivised to boost lending because every pound of additional lending would be eligible for the scheme.

Coventry had a base stock of loans worth £21bn eligible for the scheme, meaning it could access £1bn – 5 per cent of its eligible loan book – from the scheme. Placing the Mercia bond with the Bank of England will allow it to access a further £1.4bn of cheap funding through the FLS if it increases its net lending.

The building society has structured the deal so it can repay the FLS by publicly issuing the notes in the future.

Coventry’s head of structured finance and funding Kris Gozra says: “Mercia no.1 has been structured with a view to accessing central bank facilities while enabling ready access to public markets.”

CBS entered the securitisation market for the first time in April this year, with a £933m issue backed by owner-occupied mortgages originated by Godiva. It has also issued three covered bonds since April 2011.


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