OREANDA-NEWS. Fitch Ratings has downgraded the ratings of Island Refinancing S.r.l,'s floating rates due 2015 as follows:

EUR62m Class B (IT0004293574) downgraded to 'BBsf' from 'BBBsf'; Outlook Negative
EUR60m Class C (IT0004293582) downgraded to 'CCsf' from 'CCCsf' from 'Bsf'; Recovery Estimate 30%
EUR32m Class D (IT0004293590 downgraded to 'Csf' to 'CCCsf'; Recovery Estimate 0%

Island Refinancing is a refinancing of Island Finance (ICR4) S.p.A. and Island Finance 2 (ICR7) S.r.l. ICR4 and ICR7 were securitisations of NPLs originated in Italy by Banco di Sicilia S.p.A. (BdS, part of the UniCredit banking group, BBB+/Stable/F2).

KEY RATING DRIVERS
The downgrades reflect a worsened rate of collections since the last rating action in July 2014. The Negative Outlook reflects the possibility of this trend continuing, as well as uncertainty around the timing of release of the substantial funds tied up in courts (EUR65.6m as of January 2015, up from EUR44m in July 2014). With most of these funds tied up in courts in Sicily, Fitch expects a trickle of funds to be released over time, but cannot assume the full amount will be available by bond maturity in 2025.

Fitch expects the class B notes to be repaid in full. Once this occurs (projected to be around July 2021) the class C notes may face technical default given the accumulated unpaid interest (Fitch projects over EUR20m) will become due and payable. Eventual default and loss on this class is considered probable, and in the case of the class D notes a full write-off at maturity (including substantial rolled-up interest in excess of EUR50m) is all but inevitable. In its projections Fitch assumes a gradual increase of Euribor to 4% over the term of the transaction.

As the transaction is in breach of various performance triggers, net proceeds are used to pay interest and principal on the most senior tranche only. Upon the redemption of the class A notes in January 2015, all deferred interest on the class B notes became immediately due and payable, prompting a draw of EUR1.8m from the liquidity facility given lower-than-average collections. The drawing is expected to be repaid from recovery proceeds this month.

RATING SENSITIVITIES
The ratings are sensitive to the pace of collections. Further deterioration in collections will 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 sources of information used to assess these ratings were the issuer, servicer, and periodic cash management and servicer reports.