OREANDA-NEWS. June 23, 2015. Fitch Ratings has affirmed Bowbell No.1 plc's notes (ISIN XS0552792094) at 'AAAsf' with a Stable Outlook.

The transaction is Bank of Ireland UK plc's securitisation of UK prime residential mortgage loans, originated by the Governor & Company of Bank of Ireland (BoI; BB+/Positive/B) via its BoI UK and Bristol & West brands.

KEY RATING DRIVERS
Strong Asset Performance
Over the past 12 months, the transaction's performance has been stable. Loans with more than three monthly payments overdue are unchanged at 0.9% of the collateral balance while repossessed properties increased only marginally to 0.6% from 0.5% of the original portfolio balance. Fitch notes that both measures are significantly below the UK RMBS Index for which late arrears and repossessions are currently 2.1% and 3.3%, respectively. Losses generated on sold repossessions, currently 0.1% of the original portfolio balance, are also notably better than the market average (0.8%).

The strong performance reflects the credit quality of the collateralised assets, whose main risks are represented by interest-only loans (74.4% of the performing balance vs. 79.7% of the arrear balance, self-employed borrowers (35.6% of performing vs. 45.8% of arrears) and mostly by borrowers paying the BoI standard variable rate (SVR; 28.5% of performing vs. 53.1% of arrears).

Solid Credit Enhancement
Credit enhancement, currently at 44.4% of the collateral balance, is provided by overcollateralisation (class A notes represent 43.3% of the collateral portfolio) and by a fully-funded and non-amortising reserve fund accounting for 3.7% of the notes' current balance. Together with the healthy asset performance, this contributed to the affirmation of the 'AAAsf' rating.

Interest Rate Risk Unhedged
No hedging agreement is in place to cover the mismatch between the SVR and the Bank of England Base Rate paid on the notes. 29.1% of the portfolio pays the BoI SVR (4.49%) while another 3.6% of the pool are fixed-rate loans, all of which will switch to the SVR by 2020. Therefore, in its analysis the agency reduced the credit given to the excess spread generated by the structure, which had no rating impact.

RATING SENSITIVITIES
Ineligible Account Bank
National Westminster Bank (NatWest; BBB+/Stable/F2) is the account bank in the transaction. Following its recent downgrade, NatWest is no longer eligible to support 'AAAsf' rated notes, as specified in Fitch's counterparty criteria.

The credit exposure to the institution is partially mitigated by the transfer of funds to the GIC account held at Societe Generale (A/Stable/F1), where the reserve fund also stands. However, funds must be transferred back to the transaction account on each payment date, which exposes the notes to an event of default should NatWest cease to be operative.

Fitch believes that the issuer will take remedial actions by Friday 18 September, as reflected in the affirmation. Should this not be the case, the agency will take rating actions in accordance with its counterparty criteria.

As the transaction is exposed to interest rate risk, negative movements in interest rates beyond Fitch's expectations could trigger rating actions on the notes.

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 and together with the assumptions referred to above, 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.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by BoI as at March 2015
- Transaction reporting provided by BoI as at May 2015

MODELS
Excel-based Residential Mortgage Asset Model