Securitisation

GEMGARTO 2018-1- NEGATIVE CONSENT PROCESS (GBP LIBOR TO SONIA)

Kensington launched a negative consent process in relation to the Gemgarto 2018-1 deal for the purpose of proactively modifying the reference rate applicable to all the classes of outstanding notes from 3 month GBP LIBOR to Compounded Daily SONIA (i.e. Class A to F, Class X and Class Z notes) on the deal’s next IPD in December 2020. The first call date of Gemgarto 2018-1 falls on the IPD in September 2022 which is after the expected cessation of LIBOR’s availability at the end of 2021. The deal documentation already has a built-in rate modification mechanism that allows for the issuer to propose a reference rate modification in respect of each class of notes to the trustee which in turn must be notified to noteholders. The noteholders of the most senior class (i.e. the Class A Notes) then have 30 calendar days from the notification date to object to the proposal. 

If holders of 10% or more of the principal amount outstanding of the class A notes do not object to the amendment within that period and the other modification conditions set out in the note conditions and trust deed are satisfied, the issuer and the trustee will be obliged to enter into the documentation required to implement the proposed rate modification and the reference rate applicable to each class of notes will transition from 3 month GBP LIBOR to Compounded Daily SONIA as proposed. Shortly prior to the effective date of the transition, a margin adjustment will be calculated individually for each class of notes by Citibank that has been appointed as the Pricing Agent for this purpose. The margin adjustment methodology is described in the notice to noteholders and will be based on the remaining WAL of each class of notes until the first call date in September 2022. 

In addition to the note transition, the issuer has also proposed to amend the reference rate of all the fixed-to-floating interest rate swaps to which the issuer is a party from GBP LIBOR to Compounded Daily SONIA. This will be achieved by terminating the existing Libor-linked swaps at zero cost and concurrently entering into a single replacement interest rate swap linked to Compounded Daily SONIA with the existing swap counterparty, BNP Paribas. The replacement of the existing swaps will be effective on the December IPD.

Certain consequential amendments will also be made to the transaction documentation in order to facilitate the overall transition. These changes will also allow for the revolving acquisition of newly-originated Kensington loans in accordance with the existing terms of the deal which do not have a reversionary interest rate calculated with reference to GBP LIBOR.

For full details regarding the proposal to the class A noteholders (including the margin adjustment methodology) and the negative consent process, please refer to the public RNS announcement dated 11 November 2020 available on this link for Class A noteholders and this link for other class noteholders (the “RNS”).

NO ACTION IS REQUIRED TO BE TAKEN BY ANY CLASS A NOTEHOLDER WHO DOES NOT WISH TO OBJECT TO THE BASE RATE MODIFICATION, THE SWAP RATE MODIFICATION OR THE PROPOSED AMENDMENTS (IN EACH CASE AS DEFINED IN THE RNS).

Expected Timetable

Gemgarto 2018-1 represents the first UK RMBS of Kensington where the issuer has sought to transition the reference rate from 3 month GBP LIBOR to Compounded Daily SONIA – and also the first for any specialist lender in the UK RMBS space. This is indicative of Kensington’s commitment to address the LIBOR risk across its securitisation programmes ahead of the expected cessation date at the end of December 2021. 

The RNS, the Deed of Amendment and Restatement (together with the Amended Documents) and the Replacement Interest Rate Swap Confirmation (in each case, as defined in the RNS) are available on the Kensington’s portal https://investors.kensingtonmortgages.co.uk/rmbs-reports/gemgarto/gemgarto_2018-1 (category ‘Other’).