OREANDA-NEWS. Fitch Ratings has upgraded three tranches of the Southern Pacific Financing (SPF) and Southern Pacific Securities (SPS) series and affirmed 49 tranches. The series comprises nine UK non-conforming RMBS transactions originated by Southern Pacific Mortgage Limited. A full list of rating actions is available at www.fitchratings.com or by clicking the link above.

KEY RATING DRIVERS
Strong Credit Enhancement
The upgrade of SPF 05-B's class D and E notes and SPS 05-2's class D1a notes reflects their robust available credit enhancement. Protection is provided by fully funded and non-amortising reserve funds of GBP4.56m and GBP2.55m, respectively.

Stable/Improving Asset Performance
Across the series, late stage arrears (loans with more than three monthly instalments overdue) are higher than in the UK Non-Conforming RMBS Index, which stands at 9.9% of the outstanding pool balance. In particular, late delinquencies span from 12.2% (SPF 04-A to) to 28.1% (SPS 05-3). In six of the nine transactions, performance has improved over the past 12 months. Reductions in late arrears were between 3.3 pp (SPS 04-1) and 0.4 pp (SPS 5-1). Conversely, SPS 04-2 has worsened, with late arrears up by 2% since the last review.

Cumulative repossessions have been broadly stable over the past 12 months with a maximum increase of 38 basis points in SPF 06-A. Repossessed properties are currently reported between 6.9% (SPF 04-A) and 17.7% (SPS 05-3) of the original portfolio balance, while the Index stands at 10.5%.

The stable performance and replenishment of the reserve fund, currently at 90.1% of its target level, are the key drivers for the revision of the Outlook to Stable from Negative on SPF 04-A's class D and E notes.

Fitch notes that the SPS transactions are performing worse than the SPF series due to the asset characteristics. SPS portfolios include a significant portion of second-lien loans, between 5.5% (SPS 05-3) and 9.2% (SPS 04-1), and borrowers with adverse credit history: debtors with past country court judgments represent between 23.7% (SPS 04-1) and 52.5% (SPS 06-1) of the current portfolios, while borrowers subject to bankruptcy order prior to the deals' closing are between 0.8% (SPS 04-1) and 4.5% (SPS 05-3).

Tail Risk
SPF 04-A, SPS 04-1, SPS 04-2 and SPS 05-1 have paid down to the extent that the outstanding pools are 6.2%, 3.8%, 5.5% and 7.9% of their original balance. In its analysis, Fitch has taken into consideration the concentration risk associated with small pools and considers the current credit enhancement sufficient to protect against this risk. These views are reflected in the affirmations. Fitch will continue to monitor the performance of these deals as the pools become smaller over time.

RATING SENSITIVITIES
An increase in market interest rates could cause additional stress on borrowers' affordability and potentially cause performance deterioration and negative rating action on the notes.

Only small portions of the securitised pools remain outstanding in these transactions, particularly in the older vintages. This results in borrower concentration and potential adverse selection, which may cause greater performance volatility and negative rating action 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 pools and the transactions. There were no findings that were material to this analysis.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions 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 Acenden as at May 2015
- Transaction reporting provided by Acenden as at June 2015