Fitch Affirms Arran Residential Mortgages Funding 2011-2 plc
Class A4c1 (XS0688842847): affirmed at 'AAAsf'; Outlook Stable
Class A4c2 (XS0691908718): affirmed at 'AAAsf'; Outlook Stable
Class A4c3 (XS0691920507): affirmed at 'AAAsf'; Outlook Stable
Class A4c4 (XS0691926538): affirmed at 'AAAsf'; Outlook Stable
Class A4c5 (XS0691932346): affirmed at 'AAAsf'; Outlook Stable
Class M (XS0685622879): affirmed at 'AAAsf'; Outlook Stable
The UK prime RMBS transaction is backed by mortgages originated by The Royal Bank of Scotland (RBS) and National Westminster Bank.
KEY RATING DRIVERS
Stable Asset Performance
As of April 2016, the portion of loans in arrears by more than three months was 0.4% of the current portfolio, unchanged over the last 12 months. Cumulative repossessions at 0.1% of the original pool balance resulted in negligible losses. Fitch notes that the performance of Arran 2011-2 is better than the Fitch UK All Prime Index, whose late arrears and repossessions are reported at 0.5% and 0.3%, respectively. Due to very limited properties currently in possession losses are expected to remain negligible, as reflected in the Stable Outlooks.
Payment Interruption Risk Mitigated
The fully funded and non-amortising reserve fund (9.6% of the rated notes) provides enough liquidity to cover senior fees and interest shortfalls on the rated notes for more than two payment dates. In Fitch's view, this is a sufficient timeframe for the issuer to find a replacement servicer should the original servicer default.
Pressure on Excess Spread by Step-up Margins
On the optional redemption date (January 2017), the margins on the class A4c and M notes will double. Fitch expects the funds received from the swap counterparty to be insufficient to cover the payments due to the noteholders, resulting in negative excess spread. Consequently, the transaction is likely to draw on the reserve, resulting in reduced credit enhancement (CE). Fitch's analysis took these factors into consideration and showed that the CE was sufficient to withstand these stresses.
RATING SENSITIVITIES
With 100% of the portfolio eventually reverting to a standard variable rate, the future performance of the loans in the portfolios remains vulnerable to interest rate movements. An abrupt increase in interest rates, beyond Fitch's expectations, would put a strain on borrower affordability and increase delinquencies across transactions. This could result in additional liquidity stresses within the structures, especially following the step-up dates, eventually triggering negative rating action.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
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 affected the rating 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.
Prior to the transaction's closing, Fitch did not review the results of a third party assessment conducted on the asset portfolio information.
Prior to the transaction's 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 originator's 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.
Loan-by-loan data provided by RBS as at 27 April 2016
Transaction reporting provided by RBS as at 20 April 2016
MODELS
The models below were used in the analysis. Click on the link for a description of the model.
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