OREANDA-NEWS. Fitch Ratings has affirmed Eurosail-UK Prime 2007-A (ES07-A) and Eurosail-UK 2007-6 NC Plc's (ES07-6) notes. A list of rating actions is at the end of this commentary.

The transactions are securitisations of UK non-conforming loans, originated by Southern Pacific Mortgage Limited, Preferred Mortgages Limited, GMAC-RFC, Matlock Bank Limited (London Mortgage Company), Northern Rock and Alliance and Leicester Plc.

KEY RATING DRIVERS
Divergent Asset Performance
ES07-A continued to perform well, with three months plus (3M+) arrears low at 0.7% of current pool balance and total volume of loans with properties taken into possession at 0.7% of initial pool balance. Given the current low pipeline of late-stage arrears, Fitch expects possession activities and associated losses to remain minimal in the coming year. As a result of the assets' robust performance, Fitch affirmed the ratings with Stable Outlooks.

In contrast, ES07-6's portfolio performance is weak, with 3M+ arrears at 22% of the current portfolio balance and total volume of loans with properties taken into possession at 15% of initial pool balance. The difference in asset performance can be attributed to more adverse loan characteristics, as well as the lower weighted average loan interest rate paid by borrowers in the ES07-A portfolio (2.6%) versus that paid by obligors in the ES07-6 pool (3.6%). Fitch considered all the adverse features of the transaction in its analysis, and found that the credit enhancement was sufficient to withstand the respective rating stresses. For this reason, the ratings were affirmed.

Unhedged Basis Risk
ES07-A comprises 100% bank base rate (BBR)-linked loans, while the proportion of these loans in ES07-6 makes up 5% of the pool. The notes in both transactions pay a margin over Libor, leaving the structure exposed to basis risk. For this reason, Fitch applied additional stresses to the cash flow of the structures by reducing the margin on BBR loans. The resulting analysis concluded that the rated notes were able to withstand the reduction in coupons.

RATING SENSITIVITIES
A modest rise in interest rates could lead to deterioration of the asset portfolio performance. If losses exceed Fitch's expectations, the relatively thin reserve funds (0.8% and 0.9% of current note balance of ES07-6 and ES07-A) could provide insufficient support against depleting excess spread levels, leading to negative rating actions, particularly on the junior tranches.

The rating actions are as follows:

Eurosail-UK Prime 2007-A
Class A1 (ISIN XS0328494157): affirmed at 'AAAsf'; Outlook Stable
Class A2 (ISIN XS1074651628): affirmed at 'A+sf'; Outlook Stable
Class M (ISIN XS1074652782): affirmed at 'Asf'; Outlook Stable
Class B (ISIN XS1074654481): affirmed at 'BBBsf'; Outlook Stable
Class C (ISIN XS1074654648): affirmed at 'Csf'; Recovery Estimate (RE) 45%.

Eurosail-UK 2007-6 NC Plc
Class A2a (ISIN XS0332285039): affirmed at 'AAAsf', Outlook Stable
Class A3a (ISIN XS0332285971): affirmed at 'BBB+sf', Outlook Stable
Class B1a (ISIN XS0332286862): affirmed at 'BBsf', Outlook Stable
Class C1a (ISIN XS0332287084): affirmed at 'CCCsf', RE 65%
Class D1a (ISIN XS0332287597): affirmed at 'Csf', RE 0%.