OREANDA-NEWS. Fitch Ratings has upgraded the ratings on HYDRA V Funding Corporation's series 1 bonds as follows:

JPY1.33bn* Class S1 bonds upgraded to 'AAAsf' from 'AA+sf'; Outlook Stable

JPY654m* Class S2 bonds upgraded to 'AAAsf' from 'AA+sf'; Outlook Stable

*as at 10 August 2016

The transaction is a securitisation of residential mortgage loans originated by multiple originators in Japan.

KEY RATING DRIVERS

The upgrades reflect Fitch's view that available credit enhancement is sufficient and the account bank is eligible to support 'AAAsf' ratings. 'A' or 'F1' is the minimum rating of direct support counterparties for 'AAAsf' rated notes expected by Fitch as per its Counterparty Criteria for Structured Finance and Covered Bonds.

Two of the three underlying beneficial interests (BIs) backed by their respective mortgage loan pools are senior BIs supported by subordination. Credit enhancement for class S1 and class S2 bonds increased significantly by the sequential structure and Fitch believes it provides strong protection against potential future performance deterioration. Excess spread in the Hydra V Trust is also available to redeem bonds through the BIs issued from the trust as per transaction documentation, providing additional support to the bonds.

Fitch's analysis incorporated Japan-specific assumptions in applying its APAC Residential Mortgage Criteria, in addition to its published rating criteria listed below. This includes frequency of foreclosure assumptions based on loan/value and debt/income ratios as well as loss severity for each underlying mortgage loan.

RATING SENSITIVITIES

An unexpected increase in delinquencies, defaults and loss severity from defaulted loans in the underlying pools may lead to negative rating action. However, Fitch considers the possibility of a downgrade as remote, since the bonds can maintain the current ratings even if Fitch's loss assumptions are 7.4x higher than currently assumed in the agency's 'AAAsf' stress scenario.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Form ABS Due Diligence-15E was not provided to or reviewed by Fitch in relation to this rating action.

DATA ADEQUACY

Fitch checked the consistency and plausibility of the information it received about the performance of the underlying pools 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 underlying pools information or conducted a review of loan origination files as part of its ongoing monitoring.

The originators of the remaining underlying residential mortgage loan pools are Tottori Bank Ltd., Toyota Finance Corporation and Shinsei Property Finance Co., Ltd. The senior BIs backed by the residential mortgage pools originated by Fukushima Bank Ltd., Bank of the Ryukyus Ltd. and ARUHI Corporation (formerly SBI Mortgage Co., Ltd.) have been fully redeemed.