Santander U.K. Unit Said to Plan Bonds Backed by Prime British Home Loans

Santander U.K. Plc, a subsidiary of Spain’s biggest lender, plans to issue mortgage bonds backed by prime British residential home loans, according to two people with knowledge of the deal.

Santander U.K. will issue the top AAA-rated securities in euros and pounds through the Master Issuer Plc Series 2010-4 program, said the people, who declined to be identified because the deal isn’t completed. Parent Banco Santander SA is managing the issue along with Barclays Capital and JPMorgan Chase & Co., the people said.

Santander U.K. is scheduled to complete the deal in the first week of September, said the people. The last mortgage-bond issue through the Fosse trust was a 4 billion-pound ($6.3 billion) deal on July 20, according to data compiled by Bloomberg.

Santander U.K. is rated Aa3 by Moody’s Investors Service, the fourth-highest investment grade and a level below its Spanish parent, and a step higher at AA by Standard & Poor’s.

The cost of insuring Banco Santander’s corporate bonds from default has risen this month. Credit-default swaps tied to the Madrid-based lender’s debt climbed 29 basis points in August to 160, compared with a record-high 260.5 basis points on June 8, according to data provider CMA.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros ($12.8 million) of debt from default for five years is equivalent to 1,000 euros a year.