OREANDA-NEWS. Fitch Ratings has affirmed Laurelin B.V.'s notes, as follows:

Class A-1E: affirmed at 'AAAsf'; Outlook Stable
Class A-1R: affirmed at 'AAAsf'; Outlook Stable
Class A-1S: affirmed at 'AAAsf'; Outlook Stable
Class A-2: affirmed at 'AAAsf'; Outlook Stable
Class B-1: affirmed at 'AAsf'; Outlook Stable
Class B-2: affirmed at 'AAsf'; Outlook Stable
Class C: affirmed at 'Asf'; Outlook Stable
Class D-1: affirmed at 'BBBsf'; Outlook Negative
Class D-2: affirmed at 'BBBsf'; Outlook Negative
Class E: affirmed at 'BBsf'; Outlook Negative

Laurelin II B.V. is a securitisation of mainly senior secured, senior unsecured, second-lien and mezzanine loans (including revolvers) extended to mostly European obligors. At closing, a total note issuance of EUR450m was used to invest in a target portfolio of EUR438m. The portfolio is actively managed by GoldenTree Asset Management L.P.

KEY RATING DRIVERS
The transaction started deleveraging in January 2015, which was the first payment date after the end of the reinvestment period in July 2014. The class A1 notes paid down using euro and sterling cash proceeds from the portfolio. In addition, the asset manager retained GBP17.9m for reinvestment, as allowed in the documentation.

The affirmation reflects the adequate credit enhancement and stable performance of the transaction since the last review in February 2014. The Fitch weighted average rating factor marginally improved to 35.01 from 35.68 as of last review, while the Fitch weighted average recovery rating slightly deteriorated to 64.6% from 66.0%. Assets rated 'CCC' or below decreased considerably to 5.32% from 10.93% of the portfolio. There was one defaulted obligor in the portfolio as of the January 2015 trustee report. One obligor defaulted during the past 12 months and was restructured.

The notes' overcollateralisation (OC) and interest coverage tests have not been breached since closing. OC test buffers have slightly deteriorated over the past year but remain between 11.1% for the class A/B OC test and 5.4% for the class E OC test. The interest coverage tests are passing with rising buffers.

The transaction features a multi-currency class A-1R variable funding notes to hedge sterling exposure. Following the end of the reinvestment period the transaction can no longer draw funds from the A-1R notes to hedge non-euro assets. The main hedging strategy is to match senior note redemptions by currency so that sterling principal proceeds are used to redeem sterling-denominated senior notes, while euro principal proceeds are used to redeem euro-denominated senior notes. However, a skew of defaults or prepayments to assets denominated in a single currency can create a currency mismatch, introducing additional performance volatility for the transaction. Fitch incorporated the impact of potential currency mismatch into its cash flow analysis.

The Negative Outlook on the class D and E notes reflects their sensitivity to clustering of defaults due to the increased concentration in the portfolio since the last review and the potential increase exposure to FX risks. The largest obligor in the portfolio represents 4.4%, compared with 3.1% as of last review. The aggregated 10 largest obligors increased to 31.9% from 26.5% during the same period. Given the credit enhancement for the class D and E notes, a small number of defaults could drive their downgrade.

RATING SENSITIVITIES
A 25% increase in the obligor default probability would lead to a downgrade of between one and four notches for the rated notes.

A 25% reduction in recovery rates would lead to a downgrade of between one and five notches for the rated notes.