Securitisation

KENSINGTON MORTGAGES BECOMES THE FIRST LENDER TO COMPLETE GREEN BOND SECURITISATION IN UK RMBS MARKETS

• Issuance of securitised Green Bonds (senior notes only) has been formally recognised and accredited by the Institutional Shareholder Services Group (‘ISS’) 
• The latest securitisation is the second ESG bond from Kensington following its inaugural £472 million social bond in February 2021 
• Brings Kensington’s total residential mortgage-backed securities (RMBS) issuance to £13bn since 2015 – the highest amount raised by any specialist lender in the market 

11 June 2021: Kensington Mortgages has priced its latest securitisation – Finsbury Square 2021-1 GREEN - upsized from £480 million to £750 million representing Kensington’s largest deal collateralised by new originations since 2008. The transaction is the first labelled green bond from a lender within the UK ABS market and Kensington is the third issuer in Europe to issue a green bond. The green bond aligns with the ICMA Green Bond Principles (2018 edition), contributing towards meeting the United Nations’ Sustainable Development Goals. The Green Bond has been formally accredited and recognised by ISS ESG, a leading provider of corporate governance and responsible investment solutions.

Under Kensington’s Green Bond Framework, the issuer (Finsbury Square SPV) will finance the purchase of a pool of loans (UK owner-occupied and buy-to-let residential mortgages) through a term non-recourse securitisation of the underlying loan portfolio, involving the issuance of securitised Green Bonds to investors – only the senior notes is deemed Green. The senior bonds have been priced at +65bps over SONIA, reflecting  the strong investor demand for Kensington’s RMBS program.

The deal has garnered strong demand from global investors with a total of 23 unique investors across the three tranches. The deal was oversubscribed across all tranches and the all-in pricing achieved a total cost of 70bps for a funding duration of 4.6 years.

Kensington wants to support its customers to meet the challenge of decarbonisation and therefore is committed to lending sustainably. Kensington will use the unallocated proceeds raised from the Green senior notes to continue developing its range of green products in the next years and targets to allocate more than £800 million to green loans by 2026.

Kensington will develop new green products to incentivise borrowers to buy energy-efficient properties or renovate existing buildings to improve their environmental performance. Under Kensington’s Green Bond Framework, the minimum standard required for a property to be designated as an Eligible Green Project is a B EPC rating, which represents an emissions intensity in the top 15% of residential buildings in England and Wales.

The decision to develop a Green Bond framework follows the 2020 launch of Kensington’s first range of environmentally friendly mortgage products, the eKo Cashback Mortgage which rewards borrowers with £1,000 cashback if they improve the energy efficiency of their home within the first 12 months of ownership. In May 2021, Kensington launched its next green mortgage product to continue supporting its green initiative. This product rewards owner-occupied borrowers for purchasing an A or B EPC-rated new-build property by doubling the cashback available at purchase compared with a regular cashback product.

Following the GMG 2021-1 transaction earlier this year, Kensington Mortgages is also one of the first specialist lenders to collect EPC data from its new applications and share, at loan level, with investors for all of its RMBS new origination deals since 2021.