OREANDA-NEWS. Fitch Ratings has placed Deva Financing plc on Rating Watch Negative (RWN). The transaction is backed by 45.6% of buy-to-let mortgage loans originated by Bank of Scotland (BoS; A/Negative/F1) under the brand name The Mortgage Business Public Limited Company (TMB). The rating actions are as follows:

Deva Financing Plc
Class A2 (ISIN XS0392644802) 'AAAsf'; placed on RWN
Class A3 (ISIN XS0392644984) 'AAAsf'; placed on RWN
Class A4 (ISIN XS0392645288) 'AAAsf'; placed on RWN

KEY RATING DRIVERS

Excessive Counterparty Exposure
Bank of Scotland performs the role of an account bank in this transaction, with the reserve fund currently deposited in it. The reserve fund (GBP1.3bn) is the sole source of credit enhancement for the rated notes and a default of BoS would result in a complete loss of credit support. In Fitch's view, this creates heavy reliance on BoS's creditworthiness, thus creating a counterparty dependency that we consider as excessive.

Fitch will monitor the progress of potential remedial actions, if any, and will take rating actions accordingly in the next six months. Failure to implement appropriate remedial actions will result in the notes being credit-linked to BoS and consequently a downgrade of the notes to 'Asf'.

Improving Performance
The volume of loans in arrears by more than three months in Deva has decreased to 5.1% of the outstanding portfolio balance from 6.6% 12 months earlier. Nevertheless, three-months plus arrears are still above the average 1.3% reported across Fitch rated UK buy-to-let transactions. The high level of arrears is driven by high portions of self-certified borrowers (53%) and borrowers (57%) paying a higher WA standard variable rate (SVR) of 5%.

RATING SENSITIVITIES
Deterioration in asset performance may result from economic factors. A corresponding increase in new defaults and associated pressure on excess spread and the reserve fund, beyond Fitch's assumptions, could result in negative rating actions. Furthermore, unexpected increases of interest rates might jeopardise the loan affordability of the underlying borrowers.

If there are no appropriate remedial actions, the notes will be downgraded and credit-linked to BoS's rating of 'A'.