Northern Rock loans to be part of biggest securitisation since crash

US investment firm Cerberus Capital Management is set to launch Europe's biggest mortgage-backed securitisation since the financial crisis.

The bond is reportedly backed by £6.2bn worth of mortgages originated by Northern Rock, which had to be nationalised in 2008.

Cerberus bought £13bn of Northern Rock mortgages off the Treasury in November. It has already sold £3.3bn of the portfolio to TSB, so the latest deal means it will have offloaded around three-quarters of the loan book it bought just six months ago.

Securitisation, where investors buy bonds backed by mortgage payments, is a key form of funding for mortgage lenders. However, investors shied away mortgage debt in the aftermath of the crisis as they were considered toxic.

Experts say the size of the deal shows investors have recovered their appetite for mortgage debt.

Nomura Holdings Inc's head of European ABS strategy David Covey told Bloomberg: “It's a huge deal, and the fact that such a large volume of U.K. mortgage bonds can be sold shows there is strong demand for high-quality securitisations.

“That said, the size belies the fact that the investor base remains thin, as it's likely a substantial portion of the deal was pre-placed with a few large investors.”

Henderson Global Investors head of ABS investment Edward Panek told Reuters: “We always assumed it was going to come at some point, in some way. That's a pretty significant chunk of issuance that has now effectively been dealt with. From a technical point of view, it's good news for the market.”