OREANDA-NEWS. Fitch Ratings has affirmed Residential Mortgage Securities (RMS) 19 Plc, RMS 23 Plc and RMS 25 Plc. The transactions comprise residential mortgages originated by Kensington Group plc (in RMS 19 and 23), and by Kensington Mortgage Company Limited, Mortgages 1 Limited, Money Partners Limited and GMAC-RFC (in RMS 25).

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

Asset Performance Stabilising or Improving

The proportion of late stage arrears (loans that have been delinquent for over three months) in RMS 19 and RMS 23 have decreased over the last 12 months by 3% and 1.5%, respectively. The rate of decline is higher than that in the broader UK non-conforming (NCF) market and reflects the benign rate environment.

Cumulative defaults in RMS 19 (12.9% original balance) and RMS 23 (16.52%) have historically been higher than the Fitch All UK NCF Index (10.53%). The increase in defaults in RMS 19 has broadly tracked the index since 2009. The corresponding rate in RMS 23 has been significantly higher. However, we note that it has slowed sharply over the last 12-18 months.

RMS 25 has exhibited lower late-stage arrears (currently 3.4%), cumulative defaults (3.4%) and cumulative losses (1.0%) than the broader NCF market since issuance. The strong performance versus Fitch's expectations is reflected in the performance adjustment factor we applied in the analysis.

Interest Rate Risk

Fitch has stressed the excess spread available to all three transactions. The stress addresses the mismatch between liabilities that pay on the basis of 3m LIBOR and assets that pay on the basis of Bank of England Base Rate or Kensington Variable Rate. Stresses are in line with 'Criteria Addendum: UK Residential Mortgage Assumptions'.

Excessive Counterparty Exposure

The class B1 notes in RMS 19 are capped at the rating of Barclays (A/Stable/F1). Credit enhancement for these notes is provided entirely by the reserve fund that is held at Barclays. Removal of the reserve fund would cause the rating of the notes to be downgraded by more than nine notches, implying excessive counterparty exposure.

Changes to Available Liquidity

The agency notes that the required liquidity facility levels in RMS 19 and RMS 23 have been amended (from 15% of the rated notes to 2%). However, additional liquidity is provided by sizeable reserve funds in both transactions. In Fitch's opinion, the transactions continue to have sufficient liquidity to service senior obligations for up to six months in the event of a disruption in collections.

Currency Risk

RMS 19 has a number of euro-denominated liabilities. There is a cross-currency swap in place with RBS (BBB+/Stable/F2). RBS's ratings are below the eligible rating level to support 'AAAsf' rated notes as per Fitch's Counterparty Criteria and is posting collateral as a mitigant, in line with the swap documentation. Fitch has assessed the collateral posted against the amount defined as per its criteria and made adjustments accordingly in its analysis to reflect that the amount posted according to the documentation is smaller than the amount in Fitch's current criteria.

RATING SENSITIVITIES

The class B1 notes' ratings in RMS 19 are capped at that of the issuer account bank, due to credit enhancement being provided solely by the reserve fund. Changes in issuer account bank or changes in the bank's ratings are likely to have a corresponding effect on the notes' ratings.

The mismatch between collateral posted in RMS 19 against the Fitch defined amount (per criteria) may be large enough to negatively affect ratings in the future.

Negative rating action may result from erosion of credit enhancement. The erosion may be a result of weaker asset performance due to adverse macroeconomic trends causing higher unemployment and worse debt servicing.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Prior to the transactions' closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Loan-by-loan data provided by Kensington Mortgages Limited as at 30 April 2016 (from RMS 19) and 29 February 2016 (for RMS 23 and RMS 25)

- Transaction reporting provided by Kensington Mortgages Limited as at 29 to 30 April 2016 (from RMS 19), 31 May 2016 (for RMS 23), and 30 to 31 May 2016 (for RMS 25)

- Discussions/updates from Kensington Mortgages Company dated between 12 July and 27 July 2016.

MODELS

The models below were used in the analysis. Click on the link for a description of the model.