DBRS Assigns Provisional Rating to Gemgarto 2012-1 Plc Notes

DBRS Ratings Limited (DBRS) has today assigned a provisional rating to the Class A1 notes issued under Gemgarto 2012-1 Plc (Gemgarto, issuer) as shown below:

•AAA (sf) rating to the Class A1 notes aggregating GBP201,600,000

The Class M1, Class M2, Class B1 and Class B2 – the collateralised notes and Class R1, R2 and R3 are junior to the A1 notes will not be rated by DBRS.

Gemgarto is a securitisation of a portfolio of first ranking UK residential mortgages funded by the issuance of five 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, yield reserve and excess spread. The Class A1 will be the most senior class of notes in the structure and will be supported by four classes of subordinated notes, the class M1, M2, B1 and B2 notes. Total credit support for the Class A1 notes will be at 18.5%. This support comprises of Class M1 (1.5%), Class M2 (2.5%), Class B1 (5.5%), Class B2 (6.5%) and a fully funded, non amortising reserve fund (2.5%). The notes subordinated to Class A1 including Class R1, R2 and R3 will not be rated by DBRS.

•96.24% 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.

•The credit quality of the mortgages backing the notes and the ability of the servicer to perform collection activities on the collateral. 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.

•KMC’s capabilities with respect to originations, underwriting and servicing.

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

•The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

DBRS applied its UK RMBS Criteria to assess the mortgage loss on the underlying mortgage portfolio for Gemgarto.

Note:
All figures are in GBP unless otherwise noted.

The principal methodologies applicable are:
•Master European Residential Mortgage-Backed Securities Rating Methodology
•Legal Criteria for European Structured Finance Transactions
•Swap Criteria For European Structured Finance Transactions
•Operational Risk Assessment for European RMBS Servicers
•Unified Interest Rate Model Methodology for European Securitisations

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to 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: April 3 2012