OREANDA-NEWS. March 23, 2015. Fitch Ratings has assigned Penarth Master Issuer plc's series 2015-1 notes expected ratings as follows:

Series 2015-1 A1: 'AAA(EXP)sf'; Outlook Stable
Series 2015-1 A2: 'AAA(EXP)sf'; Outlook Stable

The notes are backed by UK credit card receivables originated by the Bank of Scotland plc (BoS; A/Negative/F1) and Lloyds Bank plc (Lloyds; A/Negative/F1).

The final ratings are contingent on the receipt of final documentation conforming to information already reviewed, including the issue amounts. Fitch expects to affirm Penarth's existing tranches when final ratings are assigned.

KEY RATING DRIVERS
Firm Asset Performance
Fitch's base case charge-off expectation has been revised to 7.0% from 7.5% for the Penarth trust, which is at the median of the range of 4.5% to 8.0% assigned in similar transactions. The agency's base case assumptions for the trust's monthly payment rate (18%) and yield rate (16%) also remain unchanged since the most recent issuance in October 2014.

Originator Linkage
Due to the revolving nature of the underlying assets, relative to the amortising receivables, asset performance is closely linked to the performance of the originator. Fitch conducted an annual review of the underwriting and servicing processes at BoS and Lloyds in December 2014 and found both the policies and procedures satisfactory, as were implementation and controls.

Interchange Cap Impact
Fitch has expected regulatory pressure on interchange fees for some time and therefore has not given full credit to interchange revenue when setting its base case yield assumption, as denoted in its Credit Card ABS Rating Criteria and previous reports. EU regulation, as confirmed by a ruling of the European Court of Justice in September 2014, has reduced the cap on interchange fees to 0.3% (the current UK average is 0.9%) of transacted amounts and is due to come into force from 3Q15 in the UK. No additional yield stress was applied in the analysis, as the impact of the cap will also depend on any second-order effects on cardholder composition, payment behaviour and any countermeasures originators might implement. Fitch will continue to assess any downward pressure on yield as a result of regulatory and competitive forces.

US Dollar Swap Counterparty
The 2015-1 A1 notes will be denominated in US dollars, while the credit card receivables are denominated in sterling. To hedge the currency risk, the issuer will enter into a cross-currency swap with Wells Fargo Bank. As a US entity, Fitch does not consider the subordination clause for swap termination payments to be enforceable should Wells Fargo Bank default. This corresponds to the minimum rating eligibility (BBB+/F2) for the swap counterparty under Fitch's criteria. Further mitigating factors in line with Fitch's criteria address counterparty risk.

Stable Asset Outlook
The performance of credit card trusts continued to improve throughout 1Q15, with charge-off, delinquency and payment rates improving, while yield rates declined over the same period.

Fitch forecasts GDP growth of 2.6% for 2015 and 2.3% for 2016 in its December Global Economic Outlook. The agency believes annual UK unemployment rates for 2015 and 2016 will stay stable and eventually drop from 5.7% forecasted for 2015 to 5.5% in 2016. Fitch therefore maintains its stable outlook for UK credit card debt.

RATING SENSITIVITIES
Rating sensitivity to increased charge-off rate
Class A current rating (base case: 7.0%): 'AAAsf(EXP)'
Increase base case by 25%for Class A: 'AA+sf'
Increase base case by 50%for Class A: 'AA+sf'
Increase base case by 75%for Class A: 'AAsf'

Rating sensitivity to reduced MPR
Class A current rating (base case: 18%): 'AAAsf(EXP)'
Reduce base case by 10% for Class A: 'AAAsf'
Reduce base case by 25% for Class A: 'AA+sf'
Reduce base case by 50% for Class A: 'Asf'

Rating sensitivity to reduced purchase rate (ie aggregate new purchases divided by aggregate principal repayments in a given month)
Class A current rating (base case: 100%): 'AAAsf(EXP)'
Reduce base case by 50% for Class A: 'AA+sf'
Reduce base case by 75% for Class A: 'AA+sf'
Reduce base case by 100% for Class A: 'A+sf'

Rating sensitivity to increased charge-off rate and reduced MPR
Class A current rating: 'AAAsf(EXP)'
Increase charge-off rate by 25% and reduce MPR by 15% for Class A: 'AA+sf'
Increase charge-off rate by 50% and reduce MPR by 25% for Class A: 'A+sf'
Increase charge-off rate by 75% and reduce MPR by 50% for Class A: 'BBB-sf'