DBRS Confirms Ratings of Gemgarto 2012-1 Plc

DBRS Ratings Limited (“DBRS”) has reviewed Gemgarto 2012-1 Plc (the “Issuer”) and confirms the rating for the Class A1 Notes at AAA (sf).

Gemgarto 2012-1 Plc is a securitisation of first UK (Northern Ireland excluded) residential mortgages (portfolio of GBP 240 million at closing) originated and serviced by Kensington Mortgage Company Limited which is fully owned by Investec. The transaction closed in April 2012.

Confirmation of the ratings for the Class A1 is based upon the following analytical considerations, as described more fully below:

• Portfolio performance, in terms of level of delinquencies, as of the 14 February 2014 payment date.
• Updated portfolio defaults, loss given defaults and expected losses for the remaining pool
• Current available credit enhancement to Class A1 Notes to cover the Expected Losses at the AAA (sf) rating level.

As of 14 February 2014, the current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 0.79% and the 180+ delinquency ratio was 0.50%, while the cumulative default ratio remains at 0.0% of the original collateral balance. Defaulted mortgages are defined as any loans where the property has been repossessed.

Credit enhancement consists of subordination of the Class M1, Class M2, Class B1 and Class B2 Notes (the sum of the current outstanding balance of those collateralised notes is GBP 38.4 million) and a non-amortising Cash Reserve Fund (GBP 8.4 million). The credit enhancement to the Class A1 Notes is currently 29.54%, up from 18.52% at the transaction close. The increase is due to deleveraging of the deal and the Cash Reserve Fund balance increase. The Reserve Fund has been initially funded at 2.5% (GBP 6 million) of the initial balance of the Notes and is allowed to grow up to a size of 5% (GBP 12 million) of the initial balance of the Notes.

The transaction also includes a Yield Reserve which is used for meeting any shortfalls in payment to senior fees and interest on the Notes. The Yield Reserve is sized at 0.5% of initial balance of the Notes. As of February 2014, the amount of this liquidity facility was at GBP 1.2 million.

Barclays Bank PLC holds the Treasury Account for the transaction. The DBRS public rating of Barclays Bank PLC complies with the threshold for the Account Bank given the rating assigned to the Class A1 Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports and loan data level provided by Wells Fargo Bank International. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 26 February 2013, when DBRS confirmed the rating of AAA (sf) to Class A1 Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
• The base case PD and LGD of the current pool of mortgages for the Issuer are 1.19% and 19.37%, respectively. The corresponding levels at the AAA (sf) rating level are 18.55% and 44.41%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of Class A1 Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A1 Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A1 Notes would be expected at remain at AAA (sf).

Class A1 Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD, expected rating of AAA (sf)
• 50% increase in PD, expected rating of AAA (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

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

Initial Lead Analyst: Kali Sirugudi
Initial Rating Date: 2 April 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Dylan Cissou
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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Mincing Lane
London
EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies

• Legal Criteria for European Structured Finance Transactions
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Unified Interest Rate Model for European Securitisations