OREANDA-NEWS. Fitch Ratings has assigned A. R.T. S. Ltd.'s (ARTS) Tranche 47 an 'A-' rating with a Stable Outlook. The rating addresses the likelihood of timely payment of interest and principal.

Fitch has also affirmed the ratings on ARTS's outstanding tranches (Tranche 24, 28, 29, 30, 33, 34, 35, 36, 37, 39, 40, 41, 42, 43, 44, 45, 46, 48, 49, 50, 51, 52, 53, 54, 55 and 56) at 'A-' with a Stable Outlook, following the issue of the new debt. The agency does not rate the remaining outstanding tranches (Tranche 27, 31 and 32) but has considered their impact on the diversified payment rights (DPR) programme.

ARTS is a future flow transaction of DPRs originated by Akbank T. A.S. (BBB-/Stable/F3). DPRs are essentially payment orders processed by banks, which can arise from a variety of reasons but mainly reflect payments due on the export of goods and services, capital flows and personal remittances. ARTS has purchased all present and future US dollar-, euro-, UK pound - and Swiss franc-denominated DPRs from Akbank, financed through issued debt backed by the DPRs. The programme has been in existence since 1999.

KEY RATING DRIVERS

GCA Score Supports Rating

Fitch has a Going Concern Assessment (GCA) score of GC1 on Akbank, based on its position as the third-largest privately owned bank in the financial system and its role in the Turkish economy. Akbank had unconsolidated assets of USD85.3bn as of end-March 2016, representing about 10.9% of total deposits and 9.6% of total system assets, according to the Banks Association of Turkey.

Three-Notch Uplift

The GC1 score enables Fitch to apply a three-notch uplift to ARTS's ratings over Akbank's Long-Term Local Currency IDR of 'BBB-'. The notching uplift on DPR notes is supported by the standalone credithworthiness of Akbank, the stability, strength and diversification of the flows, the size of the total outstanding notes relative to Akbank's overall indebtedness and reasonable debt service coverage ratios (DSCRs).

Decreasing Flow Amount

Remittance flows of Akbank decreased in 2015 (about 3% compared with 2014) for the first time since the global crisis, after having doubled in the five years to 2014. The decline in flows is attributed to currency fluctuations, slow recovery in Europe and a worsening geopolitical environment such as the conflict in Syria and the breakdown of the Kurdish peace process.

DPR volumes in 1H16 suggest the declining trend is likely to continue in 2016 and the failed coup attempt of 15 July has escalated risks to Turkey's economy, which we expect to put further pressure on DPR volumes.

Reasonable Coverage

Fitch calculated the DSCRs for the programme at 49x. Based on offshore flows processed via specified correspondent banks as of end-June 2016 and incorporating Fitch's 'A-' interest rate stresses, this is well above the related early amortisation triggers and in the mid-range among peer programmes.

The agency tested the sustainability of coverage by applying FX stress and a reduction in remittances based on top 20 beneficiary concentration. At present the flows are healthy and the DSCRs are adequately above coverage-related trigger levels set out in the transaction documents, but they could decline sharply in the event of the originator's default.

Large Programme Size

Fitch estimates the new tranche, in combination with the outstanding notes, represents about 4.5% of Akbank's total liabilities and 11.2% of total liabilities, excluding customer deposits. ARTS has the largest programme size in relation to Akbank's overall liabilities among Turkish DPR programmes. In the agency's view, the current debt level of the programme is still reasonable but decreasing offshore flows and further increase in programme debt could translate into rating pressure.

RATING SENSITIVITIES

The most significant variables affecting the transaction's rating are Akbank's credit quality, the bank's GCA score, and the sovereign rating (BBB-/Stable). Additionally, the 'AA' ratings of The Bank of New York Mellon (BONY) as the issuer's account bank may constrain the ratings of the DPR notes if BONY is downgraded below the then ratings of the DPR notes without accompanying remedial action.

Another important consideration that may lead to a rating action is the level of future flow debt as a percentage of the bank's overall liability profile. This is factored into Fitch's analysis to determine the maximum notching differential allowed, given the GCA score. The outstanding note balance of ARTS relative to Akbank's liability profile is currently deemed reasonable. Although coverage is also a key input, DSCRs have been high, and the transaction is therefore expected to be able to withstand a significant decline in cash flows without it affecting the ratings.

Nevertheless, Fitch will analyse changes to these variables for their impact on the transaction's ratings.

A new issue report outlining Fitch's analysis of ARTS is available at www. fitchratings. com or by clicking the link above

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 DPR programme. There were no findings that were material to this analysis. Fitch has neither requested any third-party assessment of the information about DPR flows nor conducted a review of origination files because there is no existing asset portfolio to assess in future flow transactions.