The Aire Valley Master Trust (AVMT) is a residential mortgage backed securitisation (RMBS) programme, which currently encumbers approximately £8.5 billion of mortgage assets and provides Bradford & Bingley (B&B) with just over £2.6 billion of funding. As at 30 July 2016 the balance of the outstanding AVMT notes was approximately £5.4 billion. B&B holds £2.8 billion of these notes, with the remaining £2.6 billion (the funding) held by market. B&B proposes to call the notes to unencumber the mortgages enabling them to be included in any future sales when market conditions allow. The transaction replaces expensive legacy B&B-issued debt with cheaper DMO-issued debt, with no change in balance sheet totals. The transaction is, therefore, neutral from both a public sector net debt and budgetary perspective.
B&B has a working capital facility loan agreement with HM Treasury, allowing it to borrow up to a maximum of £11.5 billion to cover everyday operations of the company. B&B proposes to draw down £2.975 billion from this facility to redeem the notes.
The cash for the loan will form part of HM Treasury’s supplementary estimate 2016-17, which will not receive Royal Assent in the associated Supply and Appropriation Bill until mid to late March 2017. HM Treasury will, therefore, be utilising the Contingencies Fund to make this urgent payment. While B&B’s capital facility draw down will be £2.975 billion to redeem the notes, £0.750 billion will be repaid from income. The additional amount, therefore, that HM Treasury requires—and will form part of their supplementary estimate request—is therefore £2.225 billion.
Parliamentary approval for additional cash of £2,225,000,000 for this expenditure will be sought in a supplementary estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £2,225,000,000 will be met by repayable cash advances from the Contingencies Fund.