OREANDA-NEWS. Fitch Ratings has upgraded four tranches and affirmed 29 tranches of 12 Irish RMBS transactions. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

Stable Asset Performance

Over the last 24 months, Fitch has observed a decline of loans in arrears by more than three months in its All Ireland Index. As of end May 2016, the Fitch All Ireland Index stood at 13% which represents almost a 4pp decline over the last 12 months. This measure has been supported by a relatively small increase in repossessions, with Fitch's index showing an increase of around 40 bps over the last 12 months. The improved performance reflects the restructuring activity carried out by Irish servicers and the improved macroeconomic environment.

Both non-conforming transactions, Lansdowne 1 and Lansdowne 2, continue to have exceptionally high arrears balances with three month plus arrears averaging around 68% of the outstanding pool balance over the last 12 months. Phoenix 2, 3 and 4's three month plus arrears balances range from around 21% to 24%. Phoenix 5 is the strongest in the series, with three month plus arrears at around 5% of the pool balance as at May 2016. Kildare, Emerald 4, Emerald 5 and Mespil 1 all outperform the index while Celtic 11 closely matches it at around 13%. Fastnet 9 continues to be the strongest performer with arrears balances continually less than 1% of the outstanding pool balance throughout the life of the transaction.

Restructured Loans

To return loans to performing status, lenders are offering various types of restructuring options to borrowers facing financial difficulty. Restructuring options are also available to borrowers who are currently making their mortgage payments but might face difficulties in the future. Both short - and long-term solutions are offered depending on the borrower's circumstances. Most of the short-term arrangements are a temporary interest rate reduction or conversion to interest-only payments for up to a year. These arrangements represent around 27% of all mortgage restructurings across the Irish market. For borrowers with more structural issues, the most common solutions offered are: arrears capitalisation, term extension and split mortgages (together around 34% of all restructurings across the Irish market).

Fitch was not provided with loan-by-loan level information, therefore the agency made conservative assumptions based on aggregate data received from servicers and data made available by the Central Bank of Ireland covering all Irish mortgage lenders. This led to an increase in base case default probabilities of around 5% on average.

Sufficient Credit Enhancement (CE)

Emerald 5, Fastnet 9, Mespil 1 and the Phoenix series have sequential only note amortisation. The remaining transactions are currently amortising sequentially due to pro-rata trigger breaches. Fitch does not expect the triggers to start performing again in the near future and as such, envisages continued build-up of credit enhancement (CE) across all transactions. After conducting its analysis, Fitch concluded that the current CE was sufficient to withstand the agency's stresses, which is reflected in the affirmations and in some cases upgrades of the notes' ratings.

Fully Funded Reserve Funds

With the exception of the Lansdowne 2, all transactions have fully funded reserve funds (RF). Lansdowne 2's RF was at around 80.0% of its target amount as at March 2016. The drawings to date have been caused by losses, which have accumulated to around 4.0% of the initial loan balance. Lansdowne 1's RF is at its target level for the first time since February 2012 as a result of steady levels of excess spread despite the weak historical performance.

The moratorium RF and liquidity RF in Emerald 4 are both currently amortising to principal, which has helped CE build up. Fitch has given credit to both reserves when analysing the CE available to the notes.

Counterparty Exposure

The transaction documentation for the four Phoenix transactions states that replacement of the account bank will occur once the rating of KBC NV (A-/Stable/F1) falls below 'BBB+/F2'. According to Fitch's counterparty criteria for structured finance transactions direct support counterparties, such as account banks, with rating triggers of 'BBB+/F2' can only support note ratings up to 'A+sf'. Therefore, the ratings on the Phoenix transactions remain capped at 'A+sf'.

The Lansdowne series is exposed to Allied Irish Bank (BB+/Positive/B), which acts as the account bank in both deals. Given the highest rating of the notes in the two deals is only 'CCCsf', the bank's recent downgrade had no effect on the notes' ratings.

RATING SENSITIVITIES

Standard default probability assumptions were applied to loans in arrears. However, the Irish market shows the proportion of loans in arrears by more than 12 months or more to be around 65% of total arrears. Should the performance of these loans deteriorate beyond Fitch's expectations and/or result in losses that exceed the standard assumptions, the agency may take negative rating action on the affected notes.

Future rating action on counterparties in direct and indirect support roles in transactions subject to rating caps may result in the revision of the rating caps assigned to these notes.

Following the referendum in the UK to vote in favour of leaving the European Union, economies around Europe could be adversely affected as a period of uncertainty is likely to unfold.

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 pools and the transactions. 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.

Celtic 11, Emerald 4, Emerald 5, Kildare, Lansdowne 1, Lansdowne 2, Mespil 1, Phoenix 2, Phoenix 3 and Phoenix 4

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' 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.

Phoenix 5

Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Fastnet 9

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 the loan originated from 2007 to 2008. These findings were considered in this analysis by assuming an increase in the lender adjustment.

Mespil 1

Prior to the transaction closing, Fitch did not review the results of a third party assessment conducted on the asset portfolio information.

Fastnet 9 and Phoenix 5

Prior to the transactions' closing, Fitch conducted a review of a small targeted sample of the originators' origination files and found the information contained in the reviewed files to be adequately consistent with the originators' policies and practices and the other information provided to the agency about the asset portfolio.

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.

Celtic 11

Loan-by-loan data provided by Ulster Bank dated 29 February 2016.

Transaction reporting provided by Ulster Bank dated 16 March 2016.

Emerald 4 and Emerald 5

Loan-by-loan data provided by EBS dated 31 March 2016.

Transaction reporting provided by EBS dated 15 May 2016.

Mespil 1

Loan-by-loan data provided by EBS dated 31 March 2016.

Transaction reporting provided by EBS dated 23 May 2016.

Fastnet 9

Loan-by-loan data provided by Permanent TSB dated 29 April 2016.

Transaction reporting provided by Permanent TSB dated 11 May 2016.

Kildare

Loan-by-loan data provided by Bank of Ireland dated 29 February 2016. Transaction reporting provided by Bank of Ireland dated 29 February 2016.

Aggregate Restructuring data provided by Bank of Ireland dated 27 June 2016.

Lansdowne 1

Loan-by-loan data provided by Kensington dated 15 March 2016.

Transaction reporting provided by Kensington dated 15 March 2016.

Lansdowne 2

Loan-by-loan data provided by Kensington dated 16 March 2016.

Transaction reporting provided by Kensington dated 16 March 2016.

Phoenix 2

Loan-by-loan data provided by KBC dated 29 February 2016.

Transaction reporting provided by KBC dated 10 May 2016.

Aggregate Restructuring data provided by KBC dated 24 June 2016.

Phoenix 3

Loan-by-loan data provided by KBC dated 29 February 2016.

Transaction reporting provided by KBC dated 10 March 2016.

Aggregate Restructuring data provided by KBC dated 24 June 2016.

Phoenix4

Loan-by-loan data provided by KBC dated 29 February 2016.

Transaction reporting provided by KBC dated 21 March 2016.

Aggregate Restructuring data provided by KBC dated 24 June 2016.

Phoenix5

Loan-by-loan data provided by KBC dated 29 February 2016.

Transaction reporting provided by KBC dated 21 May 2016.

Aggregate Restructuring data provided by KBC dated 24 June 2016.

Restructuring data provided by the Central Bank of Ireland at end-March 2016.