FNFC bond issue is first of its kind

FIRST National Finance Corporation, the hard-pressed consumer finance group, has removed pounds 190m worth of second mortgages from its balance sheet through a unique bond issue.

The group has placed the loans, which are secured by a secondary charge over the borrowers' houses, in a new company which is issuing pounds 170m of senior loan notes, with a maturity of three years, and pounds 20m of mezzanine debt with a higher interest rate but ranking lower in the pecking order for any payouts.

It is believed to be the first debt issue secured on secondary mortgages, though FNFC has previously sold off pounds 200m of mortgages and unsecured loans through bond issues.

The senior debt has been given an AAA rating by the debt rating agencies. The issues carries an interest rate of 0.625 per cent over the three-month London Interbank Offered Rate - the rate at which banks lend to each other - until its expected maturity date of October 1995.

FNFC, which was the largest secondary bank saved by the Bank of England's lifeboat in the mid- 1970s, has pounds 1.1bn worth of loans on its balance sheet. Of this nearly half are secondary mortgages and a third unsecured loans.

Tim Ingram, FNFC's finance director, said the purpose of the issue was fund-raising to take some pressure off the group's balance sheet.

The market was pleased that FNFC was able to launch the issue. Its shares rose 3.5p to 33.5p.