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03 February 2021

Kensington completes inaugural £472 million social bond STS securitisation

By Alex Maddox
Capital Markets & Digital Director of Kensington Mortgages

3 February 2021: Kensington Mortgages today announces its latest securitisation sized at £472 million. The transaction is the first labelled Social Bond from a specialist lender and aligns with the ICMA Social Bond Principles of 2020 and contributes towards meeting the United Nations Sustainable Development Goals. The Social Bond has been formally accredited and recognised by ISS ESG, a leading provider of corporate governance and responsible investment solutions.

Refinancing the UK owner-occupied home loans originated by Kensington through the issuance of RMBS is a critical part of the funding cycle that enables Kensington to cost-effectively reinvest and help underserved individuals obtain access to banking services and socio-economic advancement by owning a real estate asset which serves as the main residence.

Under Kensington’s Social Bond Framework, the Issuer (Gemgarto SPV) will finance the purchase of such a pool of loans through a term non-recourse securitisation of the underlying loan portfolio, involving the issuance of securitised Social Bonds to investors. The senior bonds has been priced at + 59bps over SONIA, reflecting excellent market conditions.

The deal has garnered strong demand from the majority of global investors with a total of 28 unique investors across the four tranches incl. bank treasuries attracted by the STS paper and investors that now include ESG factors as part of their investment’s decision.

It was oversubscribed across all tranches; The all-in pricing achieved is the tightest by a Kensington securitisation since the Global Financial Crisis is the tightest with a total cost of 66bps.

The formally recognised Social Bonds demonstrate how Kensington is aligning with UN Sustainable Development Goals relating to reducing inequality and building sustainable cities and communities.

The Social Bond follows the 2020 launch of Kensington’s first range of environmentally friendly mortgage products, the eKo Cashback Mortgage – which was the first Environmental-friendly mortgage product from a specialist lender in the UK.  

Alex Maddox, Capital Markets & Digital Director, Kensington Mortgages comments:

“We’ve started the new year in a very strong position. With the successful pricing of our first securitisation of 2021, it marks Kensington as the first specialist lender to issue Social Bonds in the UK RMBS markets."

“Our aim is always to help underserved borrowers. We look beneath the surface and consider complex and multiple income sources and lend to those who do not pass the automated credit process that most high street banks rely on and otherwise struggle to own a home."

“We are continuing to integrate ESG initiatives into our business. Last August, we publicly released our ESG targets for the current financial year for the first time – again making us the first specialist lender in the UK to publish such an initiative. These will be reviewed on an annual basis so that we can publicly report on the progress we are making in each area – and our targets will help ensure that we are creating a positive impact in both the workplace and wider world."

"We also provided EPC data for the properties in the GMG 2021-1 transaction which is the first time that this has been provided by a UK specialist lender.”

A spokesperson for ISS ESG adds:

“ISS ESG finds that the Use of Proceeds description provided by Kensington is aligned with the ICMA Social Bond Principles (“SBPs”). The offering of home loan financing to an underserved population follows the “Socioeconomic Advancement and Empowerment” and “Access to Essential Services (financial services)” categories of the SBPs."

“The issuer has identified an appropriate target population consisting of credit applicants with complex income or who are self-employed, first-time buyers with limited credit history, contractors and later life or younger borrowers."

“The project categories are aligned with the issuer’s broader sustainability strategy and clear exclusion criteria are also defined.”

Kensington has designed a dedicated ESG section on its investor portal where content on each ESG target can be found.

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