Fitch downgrades Kensington Mortgages
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Fitch Ratings has downgraded Kensington Mortgages’ UK special servicer rating based on the increased pressure on the company’s finances.
The ratings agency has also expressed concerns that a prolonged economic downturn will have a negative impact on Kensington’s performance.
As a result Fitch has downgraded Kensington’s UK residential mortgage special servicer rating to ‘RSS2+’ from ‘RSS1-‘.
This is based on a scale of of 1 to 5, with 1 being the highest rating.
Fitch says the concerns about Kensington’s financial position pose less of an issue in the short-term.
But it adds that it has decided to downgrade the company because these issues are not consistent with Fitch’s definition of a ‘Level 1’ rated servicer.
Fitch says it has noted “some deterioration in Kensington’s asset quality and weakening profitability.”
Kensington’s management says it expect the firm to stay profitable in the medium-term, according to Fitch.
The report from Fitch says that although Kensington seems to have made good provisions for losses “the outlook remains uncertain and the risk of further material provisions by Kensington cannot be excluded.”
Fitch also argues that parent company Investec’s appetite to continue providing funding to Kensington may weaken in the event that loan losses spiral.
Fitch says the stable position of Investec’s main UK subsidiary, Investec Bank, will stand Kensington in good stead.
The ratings agency also acknowledges Kensington’s “robust risk and process management systems that were further improved over the last 12 months as well as the restructuring of the special servicing group following the resignation of a key, senior manager earlier this year.”
Kensington has managed arrears well in the past, according to Fitch, with the company’s performance still “supported by the company’s successful working relationship with Homeloan Management Limited.”
As at March 31, Kensington was a special servicer on 12 residential mortgage-backed securities issues with an outstanding balance of £3.27bn on 35,056 loans.
The active special servicing book totals 10,244 loans worth £965m.
Sub-prime represents 79% of Kensington’s entire portfolio, with buy-to-let accounting for 14%, prime making up 2% and right-to-buy mortgages totalling 5%.
A spokesman for Kensington says: “Kensington’s special servicer rating remains the highest in the UK and Fitch has recognised our robust risk and process management systems, which it points out have been further improved over the past 12 months.
“However, these improvements have been made against a backdrop of of extreme economic uncertainty in the last year and this rating is a reflection of that economic environment.”
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