OREANDA-NEWS. Fitch Ratings has taken rating actions on Gosforth Funding 2011-1 (Gosforth 2011-1), Gosforth Funding 2012-1 (Gosforth 2012-1), Gosforth Funding 2012-2 (Gosforth 2012-2) and Gosforth Funding 2014-1 plc, a series of four UK prime RMBS transactions. A list of rating actions is provided at the end of this commentary.

The underlying mortgages in the series were originated by both Northern Rock Asset Management and Virgin Money plc (BBB+/Stable/ F2).

KEY RATING DRIVERS

Robust Credit Enhancement Drives Upgrades
Prepayment rates of Gosforth 2011-1, 2012-1 and 2012-2 over the past year have remained fairly high, averaging 22%, 50% and 45%, respectively, per annum. The high level of prepayments is attributable to a large number of borrowers who, at the end of their fixed-rate or tracker-rate periods, are opting to either refinance their mortgages or to switch product types. The latter option has resulted in mandatory repurchases of loans by the seller.

The share of tracker- and fixed-rate loans ranges between 43% and 64% across the three transactions, the majority of which will revert to standard variable rate (SVR) by 2017.

The notes for all three transactions are amortising sequentially with no pro-rata triggers in place. In combination, high prepayments and sequential note amortisation are expected to lead to a further, steady-build up in credit enhancement (CE) across the structures. The CE of the class M notes currently stands at 28%, 29%, and 21% for Gosforth 2011-1, 2012-1 and 2012-2 respectively, compared with 10%, 10% and 7% at close.

Considering the characteristics of the underlying pools and the structural features of the deals, these levels of CE are deemed sufficient to withstand increased stresses, thus leading to an upgrade of the class M notes of Gosforth 2011-1, 2012-1 and 2012-2 to 'AAAsf' from 'AAsf'.

Gosforth 2014-1 Still Revolving
For Gosforth 2014-1, only one payment date passed since transaction close in September 2014. The transaction is still in its revolving period, which ends in October 2019. The performance of the portfolio has remained within our expectation, while the portfolio has not been subject to any major shift in underlying characteristics. Thus the asset replenishment trigger has not been breached. As a result this transaction has been affirmed.

Solid Asset Performance
All four transactions have reported solid asset performance since close, with low three months plus arrears, ranging between 0.01% (Gosforth 2014-1) and 0.8% (Gosforth 2011-1) of their respective collateral balances. The volume of loans taken into possession remains limited.

Based on the limited volume of late-stage arrears and loans in possession (up to 2bp of their respective current collateral balances) we expect negligible losses in all four portfolios in 2015. For this reason, the agency has affirmed the class A notes of Gosforth 2011-1, 2012-1 and 2012-2 at 'AAAsf' with Stable Outlooks.

SVR Risks Modelled
All four transactions are hedged against basis risk between LIBOR-linked notes and both fixed-rate and SVR- and (Bank of England base rate) BBR-linked mortgages. In Fitch's analysis of SVR-linked portfolios, the agency does not give credit to such hedging arrangements, as they are deemed difficult to replace. For this reason, the transactions were analysed as un-hedged against the ultimate exposure to basis risk between SVR and LIBOR. Fitch reduced the excess spread generated by the four transactions and found it has had no impact on the ratings of the notes.

RATING SENSITIVITIES

In Fitch's view, as fixed-rate and tracker loans in all four transactions ultimately revert to floating-rate, a sudden sharp increase in interest rates would put a strain on borrower affordability and potentially lead to a rise in arrears and subsequent defaults. Should arrears and defaults exceed Fitch's current stresses, the agency may take negative rating actions.

The rating actions are as follows:

Gosforth Funding 2011-1
Class A2 (ISIN XS0615975652): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS0615976031): upgraded to 'AAAsf' from 'AAsf'; Outlook Stable

Gosforth Funding 2012-1
Class A (ISIN XS0800625674): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS0800631649): upgraded to 'AAAsf' from 'AAsf'; Outlook Stable

Gosforth Funding 2012-2
Class A2 (ISIN XS0851843267): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS0851843341): upgraded to 'AAAsf' from 'AAsf'; Outlook Stable

Gosforth Funding 2014-1
Class A1 (ISIN XS1107298710): affirmed at 'AAAsf'; Outlook Stable
Class A2 (ISIN XS1107299361): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS1107299791): affirmed at 'AAsf'; Outlook Stable