OREANDA-NEWS. Fitch Ratings has affirmed Deva Financing Plc as follows:

Class A2 (ISIN XS0392644802) affirmed at 'A+sf'; Outlook Stable

Class A3 (ISIN XS0392644984) affirmed at 'A+sf'; Outlook Stable

Class A4 (ISIN XS0392645288) affirmed at 'A+sf'; Outlook Stable

The transaction comprises owner-occupied and buy-to-let (BTL) loans originated primarily between 2006 and 2007 by The Mortgage Business Plc, a wholly owned subsidiary of Bank of Scotland (BoS; A+/Stable/F1).

KEY RATING DRIVERS

Excessive Counterparty Exposure

The notes' rating relies materially on the credit enhancement provided by the reserve fund, which is held at BoS. Removal of this reserve would result in a downgrade of the notes by more than nine notches, thereby implying excessive counterparty exposure as per Fitch's criteria. The agency has decided to maintain the rating cap on the notes at the account bank's Long-Term Issuer Default Rating.

Stable Performance

Since December 2014, the portfolio performance has been stable, with late-stage arrears (loans that have been delinquent for over three months excluding defaults) ranging between 5.1% and 5.4% (currently 5.2%). This compares with the Fitch UK All Non-Conforming index level of 9.3% and Fitch UK All BTL level of 1.1%.

Similarly, the cumulative default rate (annualised; in terms of number of defaults), has stabilised since December 2014 and is currently between 0.1%-0.3%.

Interest Rate Risk

The portfolio comprises loans that are either tracking the Bank of England Base Rate or paying a standard variable rate. As the notes are paying on the basis of three-month LIBOR, this mismatch is hedged with BoS. In its analysis, Fitch has factored in post-swap margins of the assets, as well as their reversion profile to the standard variable rate. Given the low coupon on the notes and the support provided by the reserve fund, this stress does not have a significant effect on the notes' ratings.

RATING SENSITIVITIES

The notes are materially reliant on the reserve fund for the provision of credit enhancement. Therefore, a change in the account bank's ratings (or a change of the account bank to one with different ratings) would have a corresponding effect on the notes' ratings.

DUE DILIGENCE USAGE

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

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this 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.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction 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.

Overall, 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

The information below was used in the analysis.

- Loan-by-loan data provided by Lloyds Banking Group (A+/Stable/F1) as at 30 April 2016

- Transaction reporting provided by Lloyds Banking Group as at 30 April 2016

- Discussions/updates from servicer dated 20 June 2016

MODELS

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