DBRS Assigns Provisional Rating to Gemgarto 2011-1 Plc Notes

DBRS Ratings Limited (DBRS) has today assigned a provisional rating to the Class A1 notes issued under Gemgarto 2011-1 Plc (Gemgarto) as shown below:

•AAA (sf) rating to the Class A1 notes aggregating GBP174,000,000

The Class M1, Class M2, and Class B1 notes, are junior to the A1 notes and are not rated by DBRS.

Gemgarto 2011-1 (Gemgarto, issuer) is a securitisation of a portfolio of first ranking UK residential mortgages funded by the issuance of four classes of mortgage-backed notes. The mortgages were originated and will be serviced by Kensington Mortgage Company Limited (KMC). This is the first issuance of pass-through mortgage-backed notes by KMC since it began lending to prime borrowers in the UK residential mortgage market in November 2009.

The rating is based upon review by DBRS of the following analytical considerations:

•The transaction’s capital structure and the form and sufficiency of available credit enhancement. Relevant credit enhancement is in the form of subordination, a reserve fund and excess spread. The Class A1 will be the most senior class of notes in the structure and will be supported by 3 classes of subordinated notes, the class M1, M2, and B1 notes. Total credit support for the Class A1 notes will be at 14%. This support comprises of Class M1 (7%), Class M2 (4%), Class B1 (2%) and a fully funded reserve fund (1%). The Gemgarto structure also includes an excess spread class of notes, the Class B2, which will not be rated by DBRS.

•97.2% of the loans in the mortgage portfolio initially pay a fixed rate of interest as compared to a variable rate of interest (linked to 3monthGBPLibor) paid on the notes. To hedge this basis risk, the structure is supported by a fixed/floating swap which will amortise based on a fixed schedule.

•Gemgarto mortgage portfolio includes KMC’s new mortgage products offerings to prime borrowers in UK. DBRS reviewed the origination criteria by KMC for these new mortgage products and found it comparable to prime offerings by other high-street lenders in UK. DBRS was provided the performance history for the Gemgarto mortgage portfolio since origination and compared performance to prime mortgage portfolios with similar characteristics. Based on the assessment of this performance history and the origination criteria DBRS views the Gemgarto mortgage portfolio comparable to other prime mortgage portfolios in UK.

•The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.

•DBRS was provided the repossession data for mortgage portfolios serviced by KMC. The assessment of this data indicated that the forced sale discount on an average was 20%. DBRS revised its market value decline assumptions based on this higher forced sale discount of 20%.

Note:
All figures are in GBP unless otherwise noted.

The principal methodology applicable are Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda, Legal Criteria for European Structured Finance Transactions and Swap Criteria for European Structured Finance Transactions which can be found on www.dbrs.com.

Readers should also consider the DBRS commentary The Effect of Sovereign Risk on Securitisations in the Euro Area.

The sources of information used for this rating include historical performance and repossession data from KMC, and performance history of publicly rated prime UK RMBS transactions. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is a newly created financial instrument.

This is the first DBRS rating on this financial instrument.

For additional information on this rating, please see the linking document.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Kali Sirugudi, Assistant Vice President
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: November 8 2011