DBRS Morningstar Comments on Gemgarto 2018-1 PLC Following Amendment

DBRS Ratings Limited (DBRS Morningstar) reviewed the impact of an amendment effective on 16 March 2021 (the Amendment) to the Gemgarto 2018-1 PLC transaction and concluded that the Amendment will not, in and of itself, result in a downgrade or discontinuation and withdrawal of the rating on the Class A, Class B, Class C, Class D, Class E, and Class X Notes (together, the Notes).

The Amendment consists of the following changes:
-- On 16 March 2021, a switch of the index on the Notes and the swap to Sterling Overnight Index Average (Sonia) from three-month GBP LIBOR with an additional margin of 0.051% on the Class A Notes; 0.053% on the Class B, Class C, Class D, and Class E Notes; 0.029% on the Class X Notes prior to the step-up date; and an additional margin of 0.1193% on the Notes after the step-up date.
-- From June 2021 onward, a migration of the three-month GBP LIBOR-linked mortgages to the Kensington Standard Rate (KSR). The KSR is linked to the Bank of England base rate.

The changes are taking place in the context of the discontinuation of the LIBOR index by its administrator, the Financial Conduct Authority, and the absence of a guarantee that the LIBOR index will continue to exist after 2021.

DBRS Morningstar performed its analysis in the line with a moderate macroeconomic scenario detailed in the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings.

For more information about DBRS Morningstar’s view on the impact of the Coronavirus Disease (COVID-19) pandemic on residential mortgage-backed security transactions, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

The transaction is a securitisation of UK first-ranking owner-occupied residential mortgages originated and serviced by Kensington Mortgage Company Limited (KMC). The transaction is currently in its four-year replenishment period, which is scheduled to end on the payment date in September 2022. During the replenishment period, principal funds are first allocated toward the amortisation of the Class A Notes to the target notional amount before applying any remaining principal funds to purchase additional loans. The end of the replenishment period also coincides with a step-up in the margin of the Class A to E Notes. The transaction legal maturity date is on the payment date in September 2065.

More information on the transaction can be found at: https://www.dbrsmorningstar.com/issuers/23279.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in British pound sterling unless otherwise noted.

For more information on this credit or on this industry, visit www.dbrsmorningsar.com or contact us at info@dbrsmorningstar.com.

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