PRESS RELEASE: Fitch Cuts 9 Tranches Kensington Mtge Sec.
Fitch Ratings-London-16 October 2009: Today Fitch Ratings downgraded nine
tranches from Kensington Mortgage Securities Plc - Series 2007-1 (KMS). KMS is a
securitisation of residential mortgage loans originated by Kensington Group Plc.
The downgrades reflect deterioration in the underlying collateral portfolio.
The lack of seasoning in the transaction (in comparison to earlier vintage UK
transactions) means that the portfolio has not benefitted from any house price
appreciation, and has also not experienced any period of high prepayment to
allow credit enhancement to build. The transaction has therefore has less
protection from the high loss severity and worse collateral performance being
seen across the non-conforming sector. Fitch expects further house price
declines in the UK, and therefore the high volume of current repossessions in
the pool are expected to continue to see high loss severity levels as properties
are sold. In addition, growing unemployment levels are expected to result in
more borrowers, particularly those already in arrears, being unable to meet
their mortgage payments and leading to an increase in repossession levels.
In August 2009, along with an increase in loans in arrears for more than three
months (26.91% of the current pool), there was a substantial increase in current
repossessions to 3.54% from 2.60% in July 2009, amounting to GBP18.5m. This
transaction also had approximately 7% of its loans classified as second-charge
loans. Of the current second-charge loans, 34.3% are in arrears for more than
three months with 18.44% in the nine months plus bucket. Given the loss
severities being reported for these loans (around 130%), Fitch has assumed that
no recovery is made on any loans that are more than three months in arrears.
Overall, given the increased size of the book of current repossessions and
less seasoning of this transaction, Fitch expects to see loss severities
continue to rise. As of the latest report in August 2009 the weighted average
period loss severity was 37.84%. This is placing a significant stress on
available excess revenue and has required the transactions to utilise its
reserve fund since March 2009. The reserve fund is currently at 67% of its
target amount, and Fitch expects significant further draws over the next year,
with the reserve fund ultimately being fully depleted.
It should also be noted that the transaction has breached its pro rata
amortisation trigger, where the arrears performance trigger was set at 22.5% of
current outstanding collateral balance. Fitch does not expect that this trigger
will be cured and therefore the notes will repay sequentially. This is a
positive for the transaction, in particular the senior notes. Because of the
sequential pay down the class A2 notes have been affirmed as they will receive
principal first, and continue to pass a 'AAA' scenario due to the timing of
their repayment. The lower class A3 notes will, however, take longer to repay
and therefore remain exposed to losses for longer and have therefore been
downgraded.
Fitch used its EMEA RMBS surveillance criteria, employing its credit cover
multiple methodology, to assess the level of credit support available to each
class of notes.
Ratings are as follows:
Kensington Mortgage Securities plc - series 2007-1:Class A2 (ISIN
XS0292638334): affirmed at 'AAA'; Outlook Stable; assigned a Loss Severity
Rating of 'LS-1'Class A2 DAC (XS0292642369): affirmed at 'AAA'; Outlook
StableClass A3a (ISIN XS0292638920): downgraded to 'AA' from 'AAA'; Outlook
Negative; assigned a Loss Severity Rating of 'LS-1'Class A3a DAC (XS0292644142):
affirmed at 'AAA'; Outlook StableClass A3b (ISIN XS0292652756): downgraded to
'AA' from 'AAA'; Outlook Negative; assigned a Loss Severity Rating of 'LS-
1'Class A3b DAC (XS0292651949): affirmed at 'AAA'; Outlook StableClass A3c (ISIN
XS0292640660): downgraded to 'AA' from 'AAA'; Outlook Negative; assigned a Loss
Severity Rating of 'LS-1'Class A3c DAC (XS0292653051): affirmed at 'AAA';
Outlook StableClass M1a (ISIN XS0292639225): downgraded to 'BBB' from 'AA';
Outlook Negative; assigned a Loss Severity Rating of 'LS-3'Class M1b (ISIN
XS0292651196): downgraded to 'BBB' from 'AA'; Outlook Negative; assigned a Loss
Severity Rating of 'LS-3'Class M2b (ISIN XS0292639654): downgraded to 'B' from
'A'; Outlook Negative; assigned a Loss Severity Rating of 'LS-3'Class B1a (ISIN
XS0292639902): downgraded to 'CCC' from 'BBB-';assigned a Recovery Rating of
'RR4'
Class B1b (ISIN XS0292651436): downgraded to 'CCC' from 'BBB-';assigned a
Recovery Rating of 'RR4'
Class B2 (ISIN XS0292640157): downgraded to 'CC' from 'B'; assigned a Recovery
Rating of 'RR6'
Further commentary and performance data on the transaction are available on
the agency's public website, www.fitchratings.com.
The applicable criteria 'EMEA RMBS Surveillance Criteria,' dated 9 April 2009
and 'Global Structured Finance Rating Criteria', dated 30 September 2009" Are
available at www.fitchratings.com:
Contacts: Aksel Etingu, London, Tel: +44 (0)207 682 7135; Alastair Bigley, +44
(0) 207 417 6278; Peter Dossett, +44 (0) 207 682 7427.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email:
julian.dennison@fitchratings.com.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://
FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS
AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC
WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES
ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT,
CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER
RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT'
SECTION OF THIS SITE.
(END) Dow Jones Newswires
10-16-091303ET
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