OREANDA-NEWS.  Fitch Ratings has affirmed Sandwell Commercial Finance No. 1 plc (Sandwell 1) and Sandwell Commercial Finance No. 2 plc (Sandwell 2) as follows:

Sandwell 1 FRNs due 2039:
GBP15.5m class B (XS0191371391) affirmed at 'Asf'; Outlook Stable
GBP12.5m class C (XS0191372522) affirmed at 'BBsf'; Outlook Stable
GBP10m class D (XS0191373686) affirmed at 'CCsf'; Recovery Estimate (RE) 65%
GBP5m class E (XS0191373926) affirmed at 'Csf'; RE0%

Sandwell 2 FRNs due 2037:
GBP33.6m class A (XS0229030126) affirmed at 'BBsf'; Outlook Stable
GBP12.6m class B (XS0229030472) affirmed at 'Bsf'; Outlook Stable
GBP11.5m class C (XS0229030712) affirmed at 'CCCsf'; RE80%
GBP14.5m class D (XS0229031017) affirmed at 'CCsf'; RE0%
GBP9.4m class E (XS0229031280) affirmed at 'Csf'; RE0%

The transactions are securitisations of commercial mortgage loans originated in the UK by West Bromwich Building Society.

KEY RATING DRIVERS
The affirmations for Sandwell 1 & 2 reflect improvements seen in the number of watch-listed loans, the falling loan-to-value (LTV) ratios and the sequential paydown of the senior classes.

Most properties have been re-valued since closing (between 2010 and 2014). Following a market-wide correction in UK secondary quality property values since origination, which saw the LTV for the portfolios increase substantially, ongoing amortisation and completed loan workouts have over the last 12 months reduced the weighted average (WA) LTV in Sandwell 1 to 89.4%, from 91.6%, and in Sandwell 2 to 91.8%, from 98.5%.

Low interest rates continue to allow the servicer some time in working out distressed floating-rate loans that are unhedged, although this is only sustainable until interest rates start to rise. The WA interest coverage ratios (ICR) for the loans are 4.15x and 2.77x, for Sandwell 1 and Sandwell 2, respectively. This compares with 4.83x and 2.85x a year earlier.

As of the May/June 2015 reporting cycle, Sandwell 1 had nine of its 30 remaining loans in various stages of enforcement, compared with 11 out of 49 in Sandwell 2. While proportionally similar, the performance of Sandwell 2 is overall weaker (highlighted by the principal deficiency ledger (PDL) on the class Es), as are its prospects.

Losses in Sandwell 1 total GBP5.3m and have so far been absorbed by the reserve account. While below its target, the reserve fund is being replenished with excess spread before step-up margins will be paid on the notes (Fitch's ratings do not address the likelihood of these step-up payments being met).

Sandwell 2's reserve fund has been exhausted, with a total of GBP18.2m loan losses having been realised, leaving a GBP7.2m debit balance on the PDL for the class E notes. While excess spread can be used to replenish principal deficiencies, Fitch expects the class D and E notes from both issuers ultimately to be written off as more loan losses are realised.

Fitch expects sequential payments to continue for the foreseeable future, given that arrears in both transactions are at levels in breach of the sequential payment test. Sequential payments, along with scheduled amortisation, mitigate adverse selection risk facing senior investors in Sandwell 1 and 2.

RATING SENSITIVITIES
Evidence of recoveries or revaluations below Fitch's expectations could result in downgrades.

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 the servicer at end-May 2015 (Sandwell 1) and end-June 2015 (Sandwell 2)
-Transaction reporting provided by the servicer at end-May 2015 (Sandwell 1) and end-June 2015 (Sandwell 2)
-Loan enforcement details provided by the servicer at end-May 2015 (Sandwell 1) and at end-June 2015 (Sandwell 2)