Wednesday, October 20, 2010

Investec Looks to Bring a Subprime Deal

(Bloomberg) Investec Plc, the South African bank, is seeking to revive the market for subprime mortgage bonds in Europe three years after the securities were blamed for the worst financial crisis since the Great Depression.


Investec is selling as much as 130 million pounds ($205 million) of top-rated five-year notes at a yield spread that’s 16 times pre-crisis levels, according to two people familiar with the deal. U.K. buy-to-let specialist Paragon Group of Cos. Plc is also preparing a sale of non-conforming mortgage bonds.

Investec’s notes may yield about 3.25 percentage points more than the London interbank offered rate, said the people, who declined to be named because the sale isn’t completed. That compares with 0.2 percentage point on non-conforming notes sold by a Lehman Brothers Holdings Inc. unit in August 2007, Europe’s last public sale of the debt, JPMorgan Chase & Co. data show. 

It will be interesting to see investor reception of this type of deal.  While risk appetite is in place, housing prices and trends don't help and burned investors are still working through the issues they have. Would you hit them at L+325?   That said, if the bonds are tranched right and modeled under severe conditions, they might have some value.

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A student of the markets that has held portfolio management, analysis and trading positions for over 15 years.