OREANDA-NEWS. Fitch Ratings has assigned Gosforth Funding 2016-2 plc's notes expected ratings as follows:

Class A1a: 'AAA(EXP)sf', Outlook Stable
Class A1b: 'AAA(EXP)sf', Outlook Stable
Class A2: 'AAA(EXP)sf', Outlook Stable
Class M: 'AA(EXP)sf', Outlook Stable
Class Z: not rated

This transaction will be a securitisation of prime residential owner-occupied mortgages originated by Virgin Money plc (VM) and NRAM plc in England, Wales and Scotland. This is the seventh issuance from the Gosforth series since 2011. VM will service the loans and Homeloan Management Limited will be named as back-up administrator.

The assignment of the final ratings is contingent on the receipt of final documents conforming to information already received.

KEY RATING DRIVERS
Portfolio of Prime Mortgages
The portfolio will have a weighted average (WA) seasoning of 16 months, a WA sustainable loan-to-value ratio (sLTV) of 82.5% and WA debt-to-income (DTI) ratio of 43.4%. The WA sLTV and WA DTI are below the average for UK prime transactions rated by Fitch.

Revolving Transaction
A five-year revolving period will allow new assets to be added to the portfolio. Fitch considers that while the replenishment criteria will help mitigate risks of adverse migration of the portfolio's credit profile the potential for deterioration during the revolving period remains. Fitch has assumed changes to the portfolio characteristics, giving credit to the replenishment criteria listed in the transaction documentation where relevant.

Class A Scheduled Amortisation
Principal for the class A notes will be paid in the first instance according to a target scheduled amortisation. The class A2 notes will begin amortising after the class A1 notes have been paid down in full. Any excess principal collections are paid to the seller. The issuer will be allocated the lower of (i) principal amounts due to noteholders and (ii) all trustee available principal receipts. In the event the principal collections are not enough to meet the target scheduled amortisation the amounts due will be carried forward.

Replacement Triggers Lacking
The transaction documents do not have any counterparty replacement triggers for the two account bank providers, Lloyds Bank plc (A+/Stable/F1 - acting as collection account bank) and Virgin Money plc (BBB+/Positive/F2 - acting as VM Issuer account bank and VM Mortgages Trustee account bank).

Fitch has assumed a total loss equal to the maximum amount permitted to be held in the VM Issuer Account plus one month's worth of scheduled principal and interest to account for funds lost due to insolvency of either of these banks.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'A+sf' from 'AAAsf'.

More detailed model implied ratings sensitivity can be found in the presale report which is available at www.fitchratings.com.

DUE DILIGENCE USAGE
Fitch was provided with due diligence information from KPMG LLP. The due diligence focused on the presence of key documents in the loan file and data integrity. The findings comprise no exceptions after reviewing a sample of 449 mortgage loans. Fitch considered this information in its analysis and the findings did not have an adverse impact on our analysis.

Form 15E has been received from KPMG LLP with regard to the work performed for this transaction.

DATA ADEQUACY
VM provided Fitch with a loan-by-loan data template. Data was provided on all loans with respect to county court judgments and bankruptcy orders/individual voluntary arrangements; however, VM was unable to provide confirmation regarding borrowers that may have had prior mortgage arrears.

The mortgages in this pool were either originated by VM after January 2010 or by NRAM before being transferred to VM in January 2010; a further purchase of loans was made by VM in July 2012. VM was unable to provide performance data for NRAM-originated loans before the transfer but provided three-months-plus arrears information by vintage on the assets from the date of transfer, and performance data covering VM-originated assets.

NRAM-originated loans from previous Gosforth transactions have performed in line with comparable prime UK transactions rated by Fitch, which sufficiently compensates for this lack of data. VM confirmed that all NRAM-originated loans in the portfolio were at least six months seasoned and performing in the 12 months before the transfer to VM; Fitch therefore made no adjustment.

VM provided repossession data on 262 cases, of which 252 had sufficient data to calculate a quick sale adjustment (QSA) of 22.2% for houses and bungalows and 33.2% for flats. This is higher than the UK criteria of 17% for houses and bungalows and 25% for flats built into Fitch's market value decline (MVD) assumptions for UK RMBS transactions. Fitch applies the higher of the lender's QSA and the standard QSA assumptions under Fitch's criteria and therefore the QSA figures calculated from the data provided by VM were applied.

VM was last visited on 26 November 2015. There were no material changes in VM's origination process and lending policies since the previous visit. Fitch carried out a file review during an operational review at VM's offices to check for the accuracy of the data provided in a previous portfolio and found no material issues.

Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool 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 VM as at 31 January 2016
-Loan enforcement details provided by VM as at 31 December 2015
-Loan performance data provided by VM as at 31 December 2015