U.K. to Redeem 3 Billion Pounds of Pre-Crisis Mortgage Bonds

The U.K. government will redeem 3 billion pounds ($3.9 billion) of bonds backed by mortgages from rescued lender Bradford & Bingley, paving the way for a potential sale of the loans.

The notes will be paid back in full on Sept. 20, according to statements on Friday. The Aire Valley Mortgages securitizations mainly package buy-to-let home loans made by Bradford & Bingley before its nationalization in 2008, based on Moody’s Investors Service data.

Repaying the bonds may be a step toward the government’s goal of raising at least 15.6 billion pounds from the sale of Bradford & Bingley mortgages in the two years ended March 2018. The push follows the disposal last year of 13 billion pounds of assets from Northern Rock, another lender rescued during the financial crisis.

UK Asset Resolution, which manages state holdings from failed banks, “constantly” looks at potential asset sales, said Neil Vanham, a spokesman. Repaying the bonds will also reduces funding costs, he said.

The redemption could squeeze the market for asset-backed securities, particularly if it takes time for a new owner to buy the loans and refinance the deal with another securitization, said Rob Ford, a London-based money manager at TwentyFour Asset Management, which oversees 6.9 billion pounds.

“It’s not good for ABS markets because it means another few billion disappears,” he said. Still, investors holding the notes will “enjoy a small windfall” as they will get more than recent market prices, he said.

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