OREANDA-NEWS. Fitch Ratings has assigned Duncan Funding 2016-1 plc's notes final ratings, as follows:

EUR150,000,000 Class A1a: 'AAAsf', Outlook Stable
GBP834,400,000 Class A1b: 'AAAsf', Outlook Stable
GBP450,000,000 Class A2: 'AAAsf', Outlook Stable
GBP1,450,000,000 Class A3: 'AAAsf', Outlook Stable
GBP79,600,000 Class B: 'AAsf', Outlook Stable
GBP47,800,000 Class C: 'Asf', Outlook Stable
GBP207,000,000 Sub Note: not rated

The structure includes a retention note which is intended to comply with risk retention requirements. The note is sized at GBP170,656,000 which equals 5% of the total amount of each class of notes at close plus the start-up loan retention amount. Principal and interest on each portion of the retention note will be paid pro rata and pari passu with the relevant classes within the priority of payments

The transaction is a securitisation of UK prime residential owner-occupied mortgages originated by TSB Bank plc (TSB) or acquired from Lloyds Banking Group (LBG). Around 50% of the originations are TSB originations after the divestment from LBG, while the remaining originations predate the launch of TSB and were acquired from LBG. TSB was launched in September 2013 and divested from LBG in June 2014; it was subsequently taken over by Banco de Sabadell in June 2015.

KEY RATING DRIVERS
Prime Portfolio
The portfolio has a weighted average (WA) seasoning of 3.2 years, a WA sustainable loan-to-value ratio (SLTV) of 81.4% and WA debt-to-income (DTI) of 38.4%. The WA SLTV and WA DTI are below the average for UK prime transactions rated by Fitch.

Revolving Transaction
A five-year revolving period will allow new assets to be added to the portfolio. Fitch believes the replenishment criteria will help mitigate any significant risks around the potential migration of the portfolio's credit profile. Nonetheless, Fitch has assumed changes to the portfolio characteristics, taking into account the replenishment criteria listed in the transaction documentation.

Class A1a, A1b and A2 Scheduled Amortisation
Principal for the class A1a, A1b and A2 notes will be paid in the first instance according to a target scheduled amortisation. Any excess principal collections, above the target scheduled amortisation, will be used to purchase new assets into the pool. In the event the principal collections are not enough to meet the target scheduled amortisation no event of default will occur, and the shortfall will be brought forward.

Commingling Risk
Lloyds Bank plc, as the collection account provider, will have no rating triggers in place and further, obligor payment dates are relatively clustered on certain days of the month. Therefore, Fitch has assumed a loss of one week of principal and interest payments, to account for funds lost due to insolvency of the collection account bank, in line with the agency's counterparty criteria.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'AA-sf' from 'AAAsf'.

More detailed model implied ratings sensitivity can be found in the new issue report which is available at www.fitchratings.com.

DUE DILIGENCE USAGE
Fitch was provided with due diligence information from PricewaterhouseCoopers LLP. The due diligence focused on the presence of key documents in the loan file and data integrity. Fitch reviewed this information which indicated no adverse findings material to the rating analysis.

DATA ADEQUACY
The mortgages in this pool were either originated by TSB or transferred from LBG. Fitch received performance data including loans 3m-plus in arrears, for the total TSB book, covering vintages from 2006 to 2015. This period covers the years in which the majority of the loans were originated. TSB was also able to provide dynamic arrears data for the current TSB portfolio. The data used to calculate arrears includes accounts that were either migrated to TSB or, if closed before migration, accounts that, according to the probability of divestment model used by TSB, would have migrated into the TSB book if they had remained open. The data showed performance to be well in line with comparable prime lenders.

TSB was unable to provide data on prior arrears, since this was not recorded on the systems. For prior mortgage arrears in the last six months prior to the mortgage application TSB would not accept prior arrears of two or more months and for a value over GBP100. Further, all cases of prior arrears over GBP100 would be referred to underwriting for review. Based on TSB's policy of prior mortgage arrears, Fitch did not make any further adjustment for the missing data.

In the last 12 months, Fitch carried out a file review during an operational review at TSB's offices; Fitch checked the accuracy of the data provided in a previous portfolio and found no material issues. Review visits do not constitute 'due diligence' and Fitch does not perform due diligence, but relies upon the accuracy of data given to it.

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

To analyse the credit enhancement levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses, including prepayment speeds and interest rate scenarios.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by TSB as at 26 May 2016
- Loan enforcement details provided by TSB as at 31 December 2015
- Loan performance data provided by TSB as at 31 December 2015

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