OREANDA-NEWS. S&P Global Ratings today raised its credit ratings on Eurohome UK Mortgages 2007-2 PLC's class A2, A3, M1, M2, and B1 notes. At the same time, we have affirmed our rating on the class B2 notes (see list below).

Today's rating actions follow our credit and cash flow analysis of the transaction using information from the June 2016 investor report and loan-level data. Our analysis reflects the application of our U. K. residential mortgage-backed securities (RMBS) criteria and our current counterparty criteria (see "U. K. RMBS Methodology And Assumptions," published on Dec. 9, 2011, and "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013).

Since our August 2013 review, the weighted-average foreclosure frequency (WAFF) has decreased (see "Various Rating Actions Taken In U. K. RMBS Transactions Eurohome UK Mortgages 2007-1 and 2007-2," published on Aug. 30, 2013). This decrease is primarily due to the transaction's increased seasoning and the decline in arrears. Over the same period, the weighted-average seasoning of the performing loans has increased to 83 from 73 months. The reported total arrears decreased to 21.6% compared with 31.5% at our previous review. However, in our credit model we considered that 23.7% of the portfolio is delinquent to account for arrears that have previously been capitalized and for the risk that arrears might increase in the future, considering they are currently at a historically low levels.

Our weighted-average loss severity (WALS) calculations have increased at the 'AAA' level, but have decreased at all other rating levels. Although the transaction has benefitted from the decrease in the weighted-average current loan-to-value (LTV) ratio, this has been offset by the increase in our repossession market-value decline assumptions, which have been greater at the 'AAA' level.

The reserve fund is at its required level and cannot amortize because the transaction has breached the cumulative net loss trigger. Due to this trigger breach, the transaction does not meet the pro rata repayment conditions set out in the transaction documents, so it is paying sequentially for the remainder of its life. We have modeled it as such in our analysis.

The liquidity facility has not been drawn. The size of the liquidity facility was reduced in June 2016, and we have considered this in our cash flow analysis. The liquidity facility agreement held with Deutsche Bank AG does not comply with our current counterparty criteria. The transactions documents do not include a strong commitment of the liquidity provider to replace itself or draw to cash its obligation if we downgrade it to below 'A-1'. In fact, following our June 9, 2015 downgrade of Deutsche Bank, it failed to take any remedial actions. Therefore, in the scenarios where we give benefit to the liquidity facility, our current counterparty criteria cap the maximum achievable ratings at the long-term issuer credit rating (ICR) on Deutsche Bank, 'BBB+ (sf)'.

Our analysis indicates that the class A2, A3, M1, M2, and B1 notes pass our cash flow stresses at higher rating levels than those currently assigned. We have therefore raised our ratings on the class M1, M2, and B1 notes. The class A2 and A3 notes are able to withstand our cash flow stresses at the 'A' rating level even without the benefit of the liquidity facility. As a result, we have raised to 'A (sf)' from 'BBB+ (sf)' our ratings on the class A2 and A3 notes and delinked them from our long-term ICR on Deutsche Bank. The ratings on the class A2 and A3 notes are still linked to the ICR on the swap counterparty, Barclays Bank PLC. The transaction's swap documents are not in line with our current counterparty criteria, but they comply with a previous version. As a result, our current counterparty criteria cap our rating on the notes at the ICR plus one notch on Barclays Bank.

We have also affirmed our 'B– (sf)' rating on the class B2 notes as we do not expect these notes to suffer interest shortfalls in the next one to two years.