OREANDA-NEWS. Fitch Ratings has affirmed House of Europe Funding IV PLC as follows:

EUR91.2m Class A1 notes (ISIN XS0228470588): affirmed at 'BBsf', Outlook Stable

EUR130m Class A2 notes (ISIN XS0228472873): affirmed at 'CCsf'

EUR62.5m Class B notes (ISIN XS0228474572): affirmed at 'Csf'

EUR5m Class C notes (ISIN XS022847572): affirmed at 'Csf'

EUR49m Class D notes (ISIN XS0228476197): affirmed at 'Csf'

EUR8.5m Class E notes (ISIN XS0228477161): affirmed at 'Csf'

House of Europe Funding IV plc is a managed cash arbitrage securitisation of structured finance assets, primarily RMBS and CMBS. The portfolio is managed by Collineo Asset Management GmbH. The reinvestment period ended in December 2010.

KEY RATING DRIVERS

The affirmation reflects increases in credit enhancement (CE) for the class A1 notes and broadly stable asset performance, which offset the loss incurred by the transaction over the last 12 months. The class A1 notes have amortised by EUR58.1m from the principal proceeds and EUR514,883 from the excess spread over the past year. This resulted in CE increasing to 48.8% from 35.1%, for the class A1 notes but declining for the under collateralised class A2 to E notes.

Overall, the quality of the performing portfolio deteriorated slightly as investment grade-rated assets decreased to 73.9% from 74.9% and CCC or below-rated assets increased to 13.5% from 10.8%. The transaction received EUR6.7m recoveries over the last 12 months, reducing current defaults to EUR60.6m from EUR67.3m. A EUR1.75m loss was realised from one asset Prime 2006-1 after it reached legal maturity.

In line with Fitch's criteria we modelled the transaction's cash flows based on the pre - enforcement priority of payments. This requires the payment of interest to the class A2, B and C before payment of principal to the class A1 notes. The best pass rating for the class A1 notes is below 'CCC', which is driven by the higher interest rate scenario which Fitch assumed a stress Euribor of 5.78% for the 'BB' rating.

The analysis shows that this scenario would trigger a missed payment for at least the class C notes, which would lead to an event of default under the transaction definitions and trigger a switch to the post enforcement payment waterfall. This would lead to a deferral of the class A2, B and C interest to after the class A1 principal. Fitch's sensitivity test shows that the best pass rating with timely payment of interest based on the post enforcement waterfall would be significantly higher than the class A1 notes' current rating.

An event of default would also give the senior noteholders the right to sell the portfolio. Noteholders may decide to sell despite par losses to the senior tranche, which would trigger a downgrade of the class A1 notes to 'Dsf'.

Considering the sensitivity test in conjunction with the risk of the portfolio being liquidated at a loss to the senior notes and event of default Fitch decided to maintain the rating for the class A1 notes at 'BB', above the model-implied rating, which is a variation to the agency's criteria.

RATING SENSITIVITIES

Fitch analysed the impact of further extensions on the expected maturity dates on the ratings of the transaction. The stress considered all underlying assets at their legal maturity date and did not indicate any potential negative rating action.

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.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information.

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.

-Investor report as of 15 July 2016 provided by Deutsche Bank Trustee Company Limited

-Loan-by-loan data as of 15 July 2016 provided by Deutsche Bank Trustee Company Limited