DBRS Confirms Rating on Gemgarto 2012-1 Plc

DBRS Ratings Limited (DBRS) has today confirmed its rating on the Class A1 Variable Rate Notes (the Class A1 notes) of Gemgarto 2012-1 Plc (the Issuer) at AAA (sf).

The confirmation of the rating on the Class A1 notes is based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2015 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A1 notes to cover the expected losses at the AAA (sf) rating level.

Gemgarto 2012-1 Plc is a securitisation of a portfolio of first UK (Northern Ireland excluded) residential mortgage loans originated and serviced by Kensington Mortgage Company Limited (Kensington).

As of February 2015, the 90+ delinquency ratio is at 1.20%, while the 180+ delinquency ratio is at 0.55%. The current cumulative default ratio is low at 0.18%. Defaulted loans are defined as those where the property has been repossessed.

As of the February 2015 payment date, credit enhancement to the Class A1 notes stands at 45.96%, up from 29.54% in February 2014. Credit enhancement to the Class A1 notes consists of subordination of the Class M1, Class M2, Class B1 and Class B2 notes, and a non-amortising Cash Reserve Fund.

The Cash Reserve Fund is at GBP 9.71 million. It was initially funded at 2.5% of the initial balance of the notes (GBP 6 million) and is allowed to grow up to a size of 5.0% of the initial balance of the notes (GBP 12 million). 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 the initial balance of the notes and is at GBP 1.2 million as of February 2015.

Barclays Bank PLC holds the Treasury Account for the transaction. The DBRS public rating of Barclays Bank PLC at AA (low) complies with the Minimum Institution Rating given the rating assigned to the Class A1 notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions.”

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is Master European Structured Finance Surveillance Methodology, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

The sources of information used for this rating include investor reports provided by Wells Fargo Bank International and data from the European DataWarehouse. 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 16 April 2014 when DBRS confirmed the rating of AAA (sf) to the Class A1 notes.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared with 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 assets. 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 1.62% and 14.84%, respectively. At the AAA (sf) rating level, the corresponding PD is 22.46% and the LGD is 40.16%.
-- 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 the 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 for the Class A1 notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A1 notes would be expected to 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 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: Elisa Scalco
Rating Committee Chair: Quincy Tang

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 (December 2014)
-- Master European Structured Finance Surveillance Methodology (April 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)
-- Unified Interest Rate Model for European Securitisations (January 2013)