A&L sells 400 mln stg mortgage-backed bond

LONDON (Reuters) - Alliance & Leicester ALLL.L raised 400 million pounds from bonds backed by prime residential mortgages this week, only the second such deal in the moribund market in more than a year.

Investor demand drove the residential mortgage-backed securities (RMBS) sale and the bonds sold to a small number, said Royal Bank of Scotland, which managed the deal along with Goldman Sachs.

"It (the deal) reflects well on the quality of our underlying mortgage assets," said a spokesman for the bank, the country's No.7. A&L's balance sheet holds no self-certified mortgages and only 2 percent buy-to-let mortgages, none of which were included in this RMBS, he added.

The bank, which has agreed to a 1.3 billion pound takeover by Spain's Santander (SAN.MC), has said 0.61 percent of its mortgages were in arrears at end-June, lower than the industry average of 1.3 percent.

The issue, via A&L's Fosse Master Issuer programme, included two triple-A rated tranches, one denominated in dollars and one in euros.

The $150 million tranche, with a weighted average life of 0.91 years, pays a coupon of three-month dollar Libor plus 60 basis points and is priced at 99.93 for an effective yield of Libor plus 70 basis points.

The 400 million euro (315.6 million pounds) tranche, with a weighted average life of 3.09 years, pays a coupon of three-month Euribor plus 90 basis points and is priced at par, for a yield of 90 basis points.

That compares with spreads in the secondary market of about 165 basis points for euro-denominated triple-A UK RMBS with five years weighted average life.

"Even if it's absolutely good prime assets, it seems tight. It depends on what the details of the structure are," said an analyst specialising in asset-backed securities, who did not want to be named as he had not yet got a copy of the prospectus.