OREANDA-NEWS. Fitch Ratings has upgraded two tranches of Provide GEMS 2002-1 Plc and affirmed two tranches. A full list of rating actions is at the end of this commentary.

The transaction is a synthetic securitisation of second lien mortgage loans originated by Rheinische Hypothekenbank, now part of Hypothekenbank Frankfurt AG (A-/Negative/F1).

KEY RATING DRIVERS
Improved Performance
Over the past 12 months, the performance of the underlying assets in the portfolio has improved. The volume of credit events, which make up nearly a quarter of the portfolio, has reduced to EUR11.0m from EUR25.9m. Of the EUR14.8m credit events that have left the portfolio, 58.5% was due to ineligibility with the transaction representations and warranties, while the remaining 41.5% was due to a sale of the underlying properties.

Given the second-lien nature of the loans in the portfolio, it is not unusual that loss severities on the underlying loans remain high and on a cumulative basis are reported at 90%. Therefore, in its analysis of the transaction, Fitch assumed 0% recovery on the remaining and any future credit events across all rating scenarios. Despite these stresses, the analysis showed that the credit enhancement available to the class B and C notes was sufficient to withstand higher ratings, as reflected in their upgrade to 'AAAsf' and 'BBsf', respectively.

Exposure to Loss Allocation
As of June 2015, the class D notes had allocated losses amounting to 21.5% of the issuance amount compared with 6% 12 months ago. Meanwhile, losses are allocated to the full outstanding balance of the class E notes. While Fitch believes that further losses are likely to be allocated to the class D notes, the agency has conducted sensitivity analysis that shows that the likelihood of loss allocation to the full balance of class D notes has decreased. This view is further reflected in the revision in the Recovery Estimate for the class D notes to 40%.

Operational Risk
Fitch has not been provided with current full information on the servicing operations, structure or strategies for the transaction. Nevertheless, Fitch believes that the performance of the pool, its seasoning and the good quality of investor reports provided by Hypothekenbank Frankfurt AG, mitigates this risk. The agency is in continuous dialogue with Hypothekenbank Frankfurt to try and obtain up to date information on servicing.

RATING SENSITIVITIES
A sudden deterioration in asset performance that leads to credit events and losses for the structure beyond Fitch's assumptions would put pressure on credit enhancement, particularly at the bottom end of the structure.

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.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by Hypothekenbank Frankfurt AG as at May 2015
- Transaction reporting provided by Hypothekenbank Frankfurt AG.as at May 2015
- Discussions/updates from servicer as at 10 June 2015

MODELS
The model below was used in the analysis. Click on the link for a description of the model.

Fitch has taken the following rating actions:

Class B (XS0145701289) upgraded to 'AAAsf' from 'AAsf'; Outlook Stable
Class C (XS0145701792) upgraded to 'BBsf' from 'CCCsf'; Outlook Stable
Class D (XS0145701875) affirmed at 'Csf'; Recovery Estimate revised to 40% from 0%
Class E (XS0145702170) affirmed at 'Csf'; Recovery Estimate 0%