DBRS Assigns Provisional Rating to Residential Mortgage Securities 26 Plc Notes

DBRS Ratings Limited (DBRS) has today assigned a provisional rating to the Class A1 notes issued under Residential Mortgage Securities Plc (RMS26, issuer) as shown below:

• AAA (sf) rating to the Class A1 notes aggregating GBP150,000,000

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

RMS26 is a securitisation of a portfolio of first ranking UK non-conforming residential mortgages funded by the issuance of five classes of mortgage-backed notes. The mortgages were originated by Kensington Mortgage Company Limited (KMC), GMAC-RFC Limited (now known as Paratus AMC Limited) and Money Partners Limited. The mortgage portfolio will be serviced by KMC, delegated to Homeloan Management Limited (HML).

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 four classes of subordinated notes, the class M1, M2, B1 and B2 notes. Total credit support for the Class A1 notes will be at 28.5% of the aggregate collateralised notes. This support comprises of Class M1 (12%), Class M2 (7%), Class B1 (4%), Class B2 (2%) and a fully funded, non amortising reserve fund (3.5% of the collateralised notes). The reserve fund can build-up to 5% of the collateralised notes at close of the transaction, from excess spread, if available. The notes of Class R1, R2 and R3 (used to fund the reserve fund) will not be rated by DBRS.
• The provisional mortgage portfolio consists of loans which pay interest linked to Bank of England Base rate (BBR), 3 month GBP Libor, Kensington variable rate (KVR) and variable rate for loans originated by Money Partners Ltd. (MVR). In comparison the interest rate paid on the Class A1 notes is linked to 3 months GBP Libor. To hedge this basis risk, the structure is supported by a basis swap.
• The credit quality of the mortgages backing the notes and the ability of the servicer to perform collection activities on the collateral. The mortgage portfolio in RMS26 consists of seasoned loans originated in 2007 or before. DBRS was provided the performance history data of mortgages which covered for 62% of the RMS26 mortgage portfolio. DBRS compared the performance to non-conforming mortgage portfolios with similar characteristics to assess the credit risk profile of the RMS26 mortgage portfolio.
• KMC’s capabilities with respect to conduct 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.

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 non-conforming 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, Vice President
Rating Committee Chair: Claire Mezzanotte
Initial Provisional Rating Date: September 6 2012