OREANDA-NEWS. June 17, 2015. Fitch Ratings has affirmed the ratings of Millshaw SAMS No.1 Limited as follows:

Class A (ISIN XS0095095856): affirmed at 'AAAsf'; Outlook Stable

The transaction is a securitisation of shared appreciation mortgages originated in the UK by Barclays SAMS Limited.

KEY RATING DRIVERS

Shared Appreciation Mortgages
The underlying borrowers in the portfolio do not pay interest, but a 75% share of any house price appreciation since mortgage origination is paid at loan maturity. The annualised shared appreciation amounts disbursed to noteholders as a ratio of the outstanding note balance have increased to 22.3% from 21% over the past four quarters.

Increased Home Prices
Given the nature of the portfolio, the notes' ratings are highly sensitive to home price movements. As a result Fitch has not applied its standard approach as defined under the EMEA mortgage loss criteria, but assessed home price trends since the transaction closed in 1Q99.

Using indexation, Fitch estimates that weighted average home prices in the portfolio have appreciated by 164.7% since transaction close. The agency therefore estimates that property values would have to decline by an average of over 83% from today's property values before losses are incurred on the underlying mortgages. As this threshold is higher than Fitch's 'AAAsf' market value decline stresses, the notes have been affirmed.

Prepayment Rates within Expectations
A loan can be terminated upon death of the borrower, sale of the property, or voluntary repayment. Over the past year, annualised portfolio principal payment rates fluctuated around 5% per quarter. In its analysis, Fitch has applied mortality rates to project the likely repayment rates over the transaction's life. The proportion of borrowers aged 81 or older has continued to increase and reached 58.4% of the portfolio at end-December 2014, compared with the prior year's 55.1%.

Sufficient Liquidity
The sole source of income for the transaction is the interest earned on the GIC account, which is defined as the higher of 5% and the Jersey RPI movement plus a spread of 200bp. In March 2015, the States of Jersey reported an annualised RPI change of 0.6%, which indicates that the applicable rate remains at 5%. Even though the senior fees have decreased by about GBP5,000 on the preceding year, the interest from the GIC account was insufficient to fully cover the fees payable, which resulted in a limited draw on the expense deposit account of about GBP40,000. At the current rate, the expense deposit account (currently GBP2.25m) and the reserve fund would be fully depleted in 2039, but Fitch expects the notes to have fully repaid before then.

RATING SENSITIVITIES

Significant deterioration in home prices will increase the likelihood of a loss upon the sale of properties. However, Fitch believes that the low loan-to-value ratios provide significant protection against such losses being realised and that only very large and sustained home price depreciation could put downwards pressure on the ratings.

Cash flows within the structure are highly sensitive to the rate at which senior fees are incurred relative to the interest earned on the GIC account. Neither principal nor shared appreciation amounts can be used to cover shortfalls in senior items in the waterfall. Hence, if senior fees continue to increase at a faster pace than the income earned on the GIC account, the expense deposit account may be depleted sooner than expected. Such cash flow shortfalls could result in a rating downgrade.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

Models
Fitch's standard RMBS models are not applicable to the analysis of this type of mortgage. Analysis of past house price appreciation, projections of mortality timing and scheduled note and senior fees payments was undertaken using simple spreadsheets.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Transaction reporting provided by Structured Finance Management Offshore Limited as at 31 March 2015