Dutch RMBS cap replaces interest rate swap

Author: Danielle Myles | Published: 3 Sep 2014

A Dutch residential mortgage-backed securitisation (RMBS) has used an interest rate cap instead of the usual swap agreement to hedge interest rate risk.

Tough collateral requirements and counterparty downgrades have made swaps an increasingly expensive and illiquid way for RMBS issuers to offset the differential between underlying fixed-rate mortgages and floating-rate notes.

Last Tuesday’s Arena NHG 2014-1 deal from Delta Lloyd could provide a long-awaited solution to these interest rate issues, while also satisfying regulators’ desire for securitisations that are not filled with derivatives.

"In essence, it is a more transparent structure as it gives investors more exposure to Dutch mortgages instead of, as is normally the case, a combination of Dutch mortgages and swap counterparty," said Marc van Lent, a director at ABN Amro which acted as arranger and cap counterparty.

While Europe has seen securitisations with a swap and partial interest subordination, this is the first time...