OREANDA-NEWS. Fitch Ratings has affirmed SME Lion II B.V.as follows:

EUR5,147.9m class A affirmed at 'AAAsf'; Outlook Stable
EUR2,697.2m class B notes: not rated
EUR269.7m class C notes: not rated

SME Lion II B.V. is a granular cash flow securitisation of a EUR8.99bn static portfolio of mortgage and non-mortgage loans, granted to small and medium-sized enterprises (SME) by ING Bank N.V..

KEY RATING DRIVERS
The affirmation reflects the transaction's increased credit enhancement (CE) following the amortisation of the notes, which offsets the negative rating migration within the portfolio seen over the past 12 months. One year after closing, the class A notes have been paid down by EUR1.1bn, increasing CE to 37.8% from 33%.

Assets with bank internal ratings of '18' and '19' (the weakest non defaulted loans) increased to 0.9% and 2.75% respectively at end- December 2014, from zero levels at closing. Defaulted loans totalled EUR64.7m or 0.8% of the portfolio, with realised losses of EUR14,000 which are covered by excess spread.

The reserve fund is at the required level EUR269.7m and the principal deficiency ledger balance remains at zero. The portfolio is still positively selected with more assets rated at '11' and '12' and fewer assets rated at '14' and '15' relative to the originator's balance sheet. Fixed-rate assets represent 47.5% of the portfolio versus 100% of flexible-rate notes and the mismatch is mitigated by a swap agreement with ING Bank.

The largest industry remains healthcare, whose share of the portfolio has increased to 24.76% from 23.46% over the last 12 months. The maturity distribution of the underlying assets is similar to the portfolio at closing.

RATING SENSITIVITIES
Fitch has incorporated two stress tests to simulate the ratings sensitivity to changes of the underlying assumptions.

A 25% increase in the expected obligor default probability would lead to a downgrade of one notch for the rated notes. A 25% reduction in the expected recovery rates would lead to a downgrade of one notch for the rated notes.