Fitch Upgrades 4 Tranches of Alba RMBS Series; Affirms 19

NEW YORK & LONDON--()--Fitch Ratings has upgraded four and affirmed 19 tranches of the Alba series, four UK non-conforming RMBS transactions. A full list of rating actions is at the end of this commentary.

The Alba series comprise non-conforming residential mortgages originated by Money Partners Holding Limited, Kensington Group plc and Paratus AMC Limited (GMAC).

KEY RATING DRIVERS

Improving Asset Performance

The transactions continue to report improving asset performance, a trend that is occurring across the UK non-conforming RMBS sector. The decline in arrears across the sector is driven by the current low interest rate environment positively impacting borrower affordability. Year-on-year loans in arrears by more than three months range between 3.0% and 5.5% (Alba 2012-1 and Alba 2006-2), compared with between 3.9% and 7.2% (Alba 2012-1 and Alba 2006-2) in September 2014.

Alba 2007-1 and 2012-1 have been the stronger performers in the series, which can be partially attributed to 100% of their underlying portfolios being originated by GMAC. The portfolios of the other transactions comprise loans originated by Kensington (50% of Alba 2006-1 and 31% of Alba 2006-2) and Money Partners (10% of Alba 2006-1). According to investor reports, three month plus arrears were a minimum of eight percentage points higher for loans originated by Money Partners and Kensington than by GMAC collateral.

Recovery Rate Cap

Information received on the aggregate pools of Alba 2006-1, 2006-2 and 2007-1 suggests that the weighted average loss severity is approximately 30%. While the loans in the more recently securitised portfolio (Alba 2012-1) have reported lower losses on the outstanding balance of loans at default, the loans in the portfolio were originated at the same time as those in the more seasoned portfolios. For this reason, in its analysis of all four transactions, Fitch capped the recoveries to account for the loss severities reported across the three more seasoned transactions to date.

Pro-rata Amortisation

Alba 2006-1 and 2006-2 are currently amortising pro-rata, due to loans in arrears by more than three months falling below the trigger of 22.5%. Alba 2007-1 is expected to commence its pro-rata amortisation in the next 12 months once the current note balance falls below 50% of initial note balance (the current note balance stands at approximately 52% of the original balance). Pro-rata amortisation will be beneficial for the mezzanine and junior notes of these transactions, but will slow down the pace of credit enhancement build-up.

Unhedged Interest Rate Risk

The Alba 2012-1 series comprises 100% floating-rate loans, while 21.2% of the total note balance (class B1 and B2) is paying a fixed rate of 1.5%. This mismatch has resulted in low excess spread, particularly in the low interest rate environment. Fitch believes that excess spread will be further compressed in a decreasing interest rate scenario and for this reason reduced the excess revenue in its analysis.

In its analysis of the transactions, Fitch also applied haircuts to the excess spread generated by the three more seasoned transactions. The pools comprise varying portions of standard variable and Bank of England base rate linked loans. While the transactions are currently hedged to mitigate the mismatch between the interest received on the loans and that paid on the notes, the agency gave no credit to these hedging arrangements and reduced the excess spread generated by the structures.

The analysis showed that the credit enhancement available to the rated notes is sufficient to withstand such stresses, as reflected in the affirmations and upgrades.

RATING SENSITIVITIES

In Fitch's view a sudden rise in interest rates would put a strain on borrower affordability, particularly given the weaker profile of non-conforming borrowers. An increase in defaults and associated losses beyond the agency's stressed assumptions would result in negative rating actions, particularly at the lower end of the structures.

Fitch published an exposure draft for UK residential mortgage assumptions on 22 September 2015 (https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=871376). The proposed criteria, if adopted, will lead to smaller loss expectations for all types of mortgage portfolios. As a result, Fitch expects all outstanding UK RMBS and covered bond ratings to either be affirmed or upgraded. If the current criteria are updated after considering market feedback, Fitch will review all existing UK RMBS ratings within six months of the new criteria publication.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

For all Alba transactions:

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Information about borrower credit history, employment status and income verification was not available for this review. Fitch assumed that these borrower characteristics were detrimental and, therefore, made appropriate adjustments in its analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

For Alba 2006-1, 2006-2, 2007-1:

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transaction's initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

For Alba 2012-1:

Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data related to income verification and vendor gifted deposit information. These findings were not considered in this analysis as they are no longer relevant.

For all Alba transactions:

Overall and together with the assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

For Alba 2006-1, Alba 2006-2 and Alba 2007-1, the information below was used in the analysis.

-Loan-by-loan data provided by Wells Fargo, as at 31 August 2015

-Transaction reporting provided by Wells Fargo, up to and as at 31 August 2015

For Alba 2006-1, Alba 2006-2 and Alba 2007-1, the information below was used in the analysis.

-Loan-by-loan data provided by Citibank N.A., as at 31 August 2015

-Transaction reporting provided by Citibank N.A., up to and as at 31 August 2015

MODELS

The models below were used in the analysis. Click on the link for a description of the model.

https://www.fitchratings.com/web_content/pages/rmbs/emea-rmbs-surveillance-model.htm

EMEA RMBS Surveillance Model

REPRESENTATIONS AND WARRANTIES

Alba 2012-1:

A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the initial new issue at www.fitchratings.com. In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.

The rating actions are as follows:

Alba 2006-1 PLC:

Class A3a (ISIN XS0254830499): affirmed at 'AAAsf'; Outlook Stable

Class A3b (ISIN XS0254831893): affirmed at 'AAAsf'; Outlook Stable

Class B (ISIN XS0254833089): affirmed at 'AAsf'; Outlook Stable

Class C (ISIN XS0254833758): affirmed at 'Asf'; Outlook Stable

Class D (ISIN XS0254834053): upgraded to 'BBBsf' from 'BBsf'; Outlook Stable

Class E (ISIN XS0254834301): upgraded to 'Bsf' from 'CCCsf'; Outlook Stable

Alba 2006-2 PLC:

Class A3a (ISIN XS0271529967): affirmed at 'AAAsf'; Outlook Stable

Class A3b (ISIN XS0272876623): affirmed at 'AAAsf'; Outlook Stable

Class B (ISIN XS0271530114): affirmed at 'AAAsf'; Outlook Stable

Class C (ISIN XS0271530544): affirmed at 'Asf'; Outlook Stable

Class D (ISIN XS0271530973): affirmed at 'BBB+sf'; Outlook Stable

Class E (ISIN XS0271531435): upgraded to 'BBsf' from 'Bsf'; Outlook Stable

Class F (ISIN XS0272877514): affirmed at 'CCCsf'; Recovery Estimate (RE) 100%

Alba 2007-1 PLC

Class A2 (ISIN XS0301704747): affirmed at 'AAAsf'; Outlook Stable

Class A3 (ISIN XS0301721832): affirmed at 'AAAsf'; Outlook Stable

Class B (ISIN XS0301706288): affirmed at 'AA+sf'; Outlook Stable

Class C (ISIN XS0301707096): affirmed at 'Asf'; Outlook Stable

Class D (ISIN XS0301708060): affirmed at 'BBBsf'; Outlook Stable

Class E (ISIN XS0301708573): affirmed at 'Bsf'; Outlook Stable

Class F (ISIN XS0301708813): affirmed at 'CCCsf'; RE 100%

Alba 2012-1 PLC

Class A (ISIN XS0757132666): affirmed at 'AAAsf'; Outlook Stable

Class B1 (ISIN XS0757140172): affirmed at 'AAAsf'; Outlook Stable

Class B2 (ISIN XS0758338650): upgraded to 'AAsf' from 'Asf'; Outlook Stable

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Criteria Addendum: UK - Residential Mortgage Assumptions (pub. 11 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866856

Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds (pub. 20 Feb 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862115

EMEA RMBS Rating Criteria (pub. 28 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870255

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

ALBA 2012-1 plc - Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=674950

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=992980

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992980

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Lead Surveillance Analyst
Sean Nelson
Director
+1 212-908-0207
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Robbie Sargent
Senior Director
+44 20 3530 1404
or
Media Relations
Athos Larkou, London, +44 203 530 1549
athos.larkou@fitchratings.com
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Lead Surveillance Analyst
Sean Nelson
Director
+1 212-908-0207
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Robbie Sargent
Senior Director
+44 20 3530 1404
or
Media Relations
Athos Larkou, London, +44 203 530 1549
athos.larkou@fitchratings.com
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com