OREANDA-NEWS. Fitch Ratings has assigned Finsbury Square 2016-1 plc's notes final ratings, as follows:

GBP299,200,000 Class A: 'AAAsf', Outlook Stable
GBP15,840,000 Class B: 'AAsf', Outlook Stable
GBP15,840,000 Class C:'Asf', Outlook Stable
GBP10,560,000 Class D: 'BBBsf', Outlook Stable
GBP10,560,000 Class E: not rated
GBP4,400,000 Class X: 'BBsf', Outlook Stable
GBP7,040,000 Class Z: not rated

This transaction is a securitisation of near-prime owner-occupied and buy-to-let (BTL) mortgages originated by Kensington Mortgage Company in the UK. The ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement (CE), Kensington's origination and underwriting procedures, and the transaction's financial and legal structure.

KEY RATING DRIVERS
Near-Prime Mortgages
Fitch believes Kensington's underwriting practices are robust and the lending criteria does not allow for any adverse credit 24 months before application. Kensington has a manual approach to underwriting, focusing on borrowers with some form of adverse credit and/or complex income.

Historical book-level performance data displays robust performance, although data is limited, especially for BTL originations. Fitch assigned default probabilities using the prime default matrix while applying an upward correction for the lender adjustment.

Split Owner Occupied and Buy-to-Let Originations
In contrast to recent transactions with Kensington originations (Gemgarto 2015-1 and 2015-2), the pool consists of a split of owner occupied (OO) and BTL originations. The proportion of BTL originations in the portfolio is 18.5%.

Adverse Credit
The pool has a higher proportion of adverse credit than Gemgarto 2015-1 plc, comparable with that of Gemgarto 2015-2. The number of county court judgments (CCJs) in the portfolio is 12.8%, which is high compared with transactions classified by Fitch as prime. Fitch has applied an upward adjustment to the default probability for these characteristics in line with its criteria.

Unrated Originator and Seller
The originator and seller are unrated entities and so may have limited resources to repurchase mortgages if there is a breach of the representations and warranties (RW). This is a risk, but there are a number of mitigating factors, such as a low occurrence of previous breaches of the RW, a file review performed by Fitch and a third-party AUP report provided, which indicated no adverse findings material to the rating analysis.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables that produce losses greater than Fitch's base case expectations may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the weighted average foreclosure frequency, along with a 30% decrease in the weighted average recovery rate, would imply a downgrade of the class A notes to 'A+sf' from 'AAAsf'.

More detailed model-implied ratings sensitivity can be found in the new issue report, which is available at www.fitchratings.com.

DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Kensington provided Fitch with a loan-by-loan data template. All relevant fields were provided in the data tape, with the exception of prior mortgage arrears. Performance data on historical static arrears were provided for all loans originated by Kensington, but the scope of the data was limited due to rather low origination volumes, especially in 2010-2012, and the length of available history (Kensington started a new lending programme in 2010).

Kensington has experienced only four sold repossessions since 2009, due to its limited origination history. When assessing the relevant assumptions to apply for the quick-sale adjustment (QSA) Fitch considers the robustness of the initial valuations as the key driver together with the special servicing arrangements.

The QSA assumptions are based on a comparison between sale price and an indexed original valuation, so it is important to be clear that the original valuations obtained were robust and that sufficient controls and processes were in place to help ensure the veracity of the valuations received.

In Fitch's view, Kensington has a robust approach to obtaining property valuations - with full valuations always required together with additional desktop valuation checks, and audits made when the valuations differ substantially. Fitch's also considers that the special servicing, which is performed by Kensington, demonstrates high overall servicing ability. The agency has therefore applied QSA assumptions in line with its standard criteria and has not applied any upward adjustments.

In the last 12 months, Fitch conducted a site visit to Kensington's offices and conducted a file review to check the quality of Kensington's originations. Fitch reviewed the results of an AUP conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Overall, and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied on for the agency's rating analysis under its applicable rating methodologies indicates that it is adequately reliable.

To analyse the credit enhancement levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss-severity assumptions under various structural stresses, including prepayment speeds and interest rate scenarios.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by Kensington Mortgage Company as at 14 April 2016
- Loan enforcement details provided by Kensington Mortgage Company as at 31 December 2015
- Loan performance data provided by Kensington Mortgage Company as at 31 December 2015

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