Fitch Assigns Trinity Square 2016-1 plc Expected Rating
Class A: 'AAA(EXP)sf', Outlook Stable
Class M: not rated
Class B: not rated
Class C:not rated
Class D: not rated
Class E: not rated
Class F: not rated
Class X: not rated
Class Z: not rated
The final rating is contingent on the receipt of final documents conforming to information already provided
The transaction will be a securitisation of near-prime residential mortgages, originated by GE Money Home Lending and GE Mortgages Limited (GE). The rating is based on Fitch's assessment of the underlying collateral, available credit enhancement (CE), GE's origination and underwriting procedures, and the transaction's financial and legal structure.
KEY RATING DRIVERS
Performing Seasoned Loans
GE was a non-conforming lender that originated loans across the credit spectrum. Fitch considers these loans to be at the better end of the range given the strong performance to date and thus considers the pool to be near-prime. Consequently, while Fitch used the non-conforming matrix to determine the frequency of foreclosure, it applied credit via the lender adjustment.
The portfolio is a purchased portfolio acquired by Kensington Mortgage Company Limited (KMC) from GE in August 2015. For purchased portfolios that are on-sold to investors, Fitch considers there are risks around alignment of interest and portfolio quality. Furthermore, the seller is an unrated entity and so may have limited resources to repurchase mortgages if there is a breach of the representations and warranties. Fitch believes these risks are mitigated by a number of factors, including the eight years of seasoning of the loans, the extended file review performed by Fitch and the conducted due diligence performed as part of the purchase.
Combined Liquidity, General Reserve
The transaction is supported by an amortising reserve fund set at 3.00% of the principal balance of the notes backed by the mortgage pool. Initially, most of the reserve fund provides liquidity only to the class A and class M notes, but as these notes amortise, the amount allocated for liquidity will fall in line with the note balances (defined as 2.00% of class A and M outstanding). The rest will become available to absorb credit losses.
Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating action on the notes. Fitch's analysis revealed that a 30% increase in the weighted average (WA) foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'Asf' from 'AAAsf'.
More detailed model implied ratings sensitivity can be found in the presale 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.
KMC provided Fitch with a loan-by-loan data template; all relevant fields were provided in the data tape. Performance data on historic static arrears were provided for all loans originated by GE, but the volume of the data post 2008 was limited due to low origination levels.
Fitch has been provided with data for 3,675 sold repossessions of loans originated by GE. 3,156 observations contained no errors and were used in the analysis. When assessing the relevant assumptions to apply the quick sale adjustment (QSA), Fitch considers the robustness of the initial valuations as the key driver, together with the special servicing arrangements in place. Fitch tested the realised QSA derived from the data provided against its criteria assumptions and found the realised adjustment to be broadly in line with the criteria.
In its analysis, Fitch applied its criteria assumptions for QSA in all BTL cases without any adjustment and in owner occupied cases except houses and bungalows. In these latter two instances, a higher QSA of 19.11% (17.00% in criteria) and 22.77% (17.00% in criteria) were applied. The applied QSA reflected that observed in the data provided. Fitch believes that the dataset provided was of a sufficient size and that the QSA benchmarking is robust and appropriate for the analysis of the pool.
During the previous 12 months, Fitch conducted a site visit to GE's offices and conducted a file review to check the quality of GE's originations; no material issues were found. Fitch reviewed the results of a draft AUP conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch expects to receive the final AUP report before assigning final ratings.
Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
To analyse the CE, 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 30 November 2015
- Loan enforcement details provided by Kensington Mortgage Company as at 30 November 2015
- Loan performance data provided by Kensington Mortgage Company as at 30 November 2015
The models below were used in the analysis. Click on the link for a description of the model.
EMEA Cash Flow Model
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial presale report (see Trinity Square 2016-1 plc - Appendix, dated 08 February 2016 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.