DBRS Confirms Rating on Gemgarto 2012-1 Plc

DBRS Ratings Limited (DBRS) has today confirmed its rating on the following bond issued by Gemgarto 2012-1 Plc (the Issuer):

-- Class A1 Notes 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 February 2016.
-- 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 prime UK (Northern Ireland excluded) residential mortgage loans originated and serviced by Kensington Mortgage Company Limited.

As of February 2016, the 90+ delinquency ratio is at 1.65%, while the 180+ delinquency ratio is at 0.29%. The current cumulative default rate is low at 0.18%. Defaulted loans are defined as those in which the property has been repossessed.

As of February 2016, credit enhancement to the Class A1 Notes stands at 69.90%, up from 45.96% in February 2015. Credit enhancement to the Class A1 Notes consists of subordination of the Class M1, Class M2, Class B1 and Class B2 Notes, and the Cash Reserve Fund.

The Cash Reserve Fund is currently equal to GBP 10,857,988. It was initially funded at 2.5% of the initial balance of the Notes (GBP 6 million) and is permitted to grow to a size of 5% of the initial balance of the notes (GBP 12 million). The transaction includes a Yield Reserve which covers any shortfalls in the payment of senior fees and interest on the Class A1, Class M1, Class M2, Class B1 and Class B2 Notes. The Yield Reserve is sized at 0.5% of the initial balance of the notes and is equal to GBP 1,200,000 as of February 2016. The structure also includes a Liquidity Reserve Fund which is available to cover a shortfall in senior fees or interest on the Class A1 Notes, and is equal to 1.6% of the outstanding Class A1 Notes on the preceding determination date (GBP 629,658).

Barclays Bank Plc holds the Treasury Account for the transaction. The DBRS Long Term Critical Obligations Rating of Barclays Bank Plc of AA 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 the 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.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

The sources of information used for this rating include investor reports provided by Wells Fargo Bank International and data from Wells Fargo’s CTS Link.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purpose 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 14 April 2015 when DBRS confirmed the rating of AAA (sf) on the Class A1 Notes. The lead responsibilities for this transaction have been transferred to Andrew Lynch.

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):

-- 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: Andrew Lynch
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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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 (February 2016)
-- Master European Structured Finance Surveillance Methodology (December 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (December 2015)
-- Rating European Consumer and Commercial Asset-Backed Securitisations (October 2015)
-- Unified Interest Rate Model for European Securitisations (October 2015)
-- Derivative Criteria for European Structured Finance Transactions (February 2016)

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.