Lloyds Banking Group launched an issue of residential mortgage backed securities yesterday that will, for the first time, include a kangaroo tranche. The issue, Headingly RMBS 2011-1, is worth £1.2 billion and is made up of Class A floating rate notes of around £1 billion, with the balance in Class B and C fixed-rate notes. The issue is based on a £1.74 billion pool of mortgages originated by the Bank of Scotland against residential properties in the United Kingdom. The kangaroo tranche will come out of the Class A notes, which will also have some notes issued in euros. While the biggest strength in the issue lies in the fact that it is originated by Bank of Scotland, the main concern is the relatively low seasoning of just 22 months. Also, 88 per cent of the pool is made up of loans granted to fast-track borrowers where the income information was not verified by the originator. To hedge the current exposure, the issuer will enter into Australian dollar and euro swaps, with NAB expected to provide swap for the Australian dollar and RBS for the euros.