OREANDA-NEWS. April 21, 2015. Fitch Ratings has taken multiple rating actions on Aire Valley Mortgages Master Issuer plc, a master trust programme comprising mainly buy-to-let (BTL) residential mortgages loans originated by Mortgage Express, a wholly owned subsidiary of Bradford & Bingley (rating withdrawn in September 2012). Bradford & Bingley is now part of UK Asset Resolution Limited (UKAR).

A full list of rating actions can be found on www.fitchratings.com or by clicking the link above.

KEY RATING DRIVERS

Stable Asset Performance
Performance indicators have remained broadly unchanged. The portion of loans in arrears by more than three months is stabilising just below 1% of the outstanding collateral balance, down from the 5.5% peak in mid-2009. The current stock of properties in possession is low at 17bps of the current portfolio balance. As a result Fitch expects limited change in foreclosure activities in the near future.

Large Realised Losses
The decrease in long-term arrears is reflected by an equivalent increase in outstanding possessions. While the amount of loans in arrears by more than three months fell to GBP86m from GBP682m between May 2009 and February 2015, outstanding possessions rose to GBP690m from GBP105m. Combined with an average loss severity of 32.2% as of March 2015, realised losses have built up to 1.3% of the total amount of loans purchased by the master trust. To account for the higher-than-expected loss severities on sold properties, Fitch has adjusted its quick sale adjustment (QSA) assumptions with the effect of lowering the recovery rate.

Sufficient Credit Enhancement
Even after adjusting the QSA, the current levels of credit support from subordination and a GBP380m fully funded reserve fund (RF) continue to provide sufficient protection to the tranches against expected losses.

Pass-Through Pay-Down Structure
Following a step-up trigger breach in 2008, the purchase of new loans by the structure was no longer permitted. As a result, in 2012 a second trigger was breached when the trust size fell below the GBP10.7m threshold. Ultimately this resulted in all notes being converted to pass-through notes, regardless of their maturities.

Moreover, because of low prepayment rates, principal receipts were fully diverted to the Funding 1 vehicle instead of the seller and all class A notes were already due and payable prior to all outstanding class B, C and D notes.

RATING SENSITIVITIES

Because of low constant prepayment rates (CPR) and large proportion of interest only (IO) loans (92.9% of the pool balance), the principal payment rates (PPR) remain currently low at 6.3%. Considering the low weighted average interest rate of 2.3% paid by the borrowers and the BTL nature of the pool, Fitch does not expect prepayment to increase. As a result the build-up in credit enhancement is likely to be steady but to remain slow. This could delay potential upgrades for mezzanine and junior notes.