OREANDA-NEWS. Fitch Ratings has maintained 11 tranches of the Siena Mortgages (SM) series on Rating Watch Negative (RWN) and affirmed one tranche. The five Italian RMBS transactions were originated and are serviced by Banca Monte dei Paschi di Siena (BMPS; B-/Stable/B). A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
Adequate Credit Support
The affirmation of Siena Mortgages 10-7 S.r.l. (SM 10-7) reflects the available credit enhancement, which is sufficient to support the rating and corresponding stresses.

Ineligible Swap Counterparty
Fitch has maintained the RWN on SM07-5, SM07-5 Series 2, SM09-6 and SM09-6 Series 2 as BMPS is not eligible to support the ratings in its role as the swap provider (see 'Fitch Places Siena RMBS Series on Rating Watch Negative' dated 24 June 2015 at www.fitchratings.com). The swap agreements are a key element in the structures as the underlying portfolios have substantial exposure to fixed-rate loans as well as mixed-rate and optional loans and floating-rate loans with a cap.

The agency is in contact with BMPS and will analyse the proposed remedial actions over the next three months aiming to resolve the RWN.

Exposure to Payment Interruption Risk
Fitch notes that the limited available cash reserve in place in SM09-6 Series 2 fails to provide sufficient liquidity in case of a servicing disruption event, despite the appointed back-up servicer (Securitisation Services). The agency found that the available liquidity in the cash reserve, heavily drawn on and currently at 6.6% of its target balance, is insufficient to cover senior expenses and swap payments as well as the rated notes' interest for at least one payment date under stressed Euribor. This contributes to the RWN on SM09-6 Series 2's class A and B notes.

The other transactions in the series currently have adequate liquidity to mitigate payment interruption risk.

Diverging Asset Performance
Over the past 12 months the more seasoned transactions have performed better than the other transactions in the series. Late stage arrears (loan with at least three monthly payments overdue) remained stable between 1% (SM07-5) and 1.5% (SM07-5 Series 2) of the current pool. Outstanding defaults, defined as mortgages with 12 monthly, seven quarterly and four semi-annual instalments unpaid, have increased by only 10bp to 1.4% of the initial pool in SM07-5 and 2.1% in SM07-5 Series 2.

SM09-6 and SM09-6 Series 2 and SM10-7 have shown more pronounced late stage arrears, between 1.2% (SM10-7) and 2.3% (SM09-6 Series 2), and a larger volume of outstanding defaults, reported at 1.5% (SM10-7) of the initial pool, 3% (SM09-6 Series 2) and 3.8% (SM09-6). In Fitch's view, the weaker performance of SM09-6 and 09-6 Series 2 is likely to continue and can be ascribed to the larger exposure towards self-employed borrowers. This also applies to SM10-7 as defaults and late stage arrears are rapidly increasing.

RATING SENSITIVITIES
Failure to take remedial action on the swaps provided by BMPS and unmitigated interest rate exposure may trigger negative rating action on the notes currently on RWN.

Failure to address exposure to payment interruption risk may trigger negative rating action on SM09-6 Series 2.

Deterioration in asset performance beyond Fitch's assumptions, combined with additional reserve drawings, could trigger negative rating action, starting from the mezzanine tranches, and exposure to payment interruption risk. SM09-6 is particularly sensitive to these risks given the weaker asset performance and reserve fund that is currently at 63.1% of its target balance.

Changes to Italy's Long-term Issuer Default Rating (BBB+/Stable) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes on the notes rated at this level.

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 has not reviewed the results of any third party assessment of the asset portfolios 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 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 pools information relied upon for its initial rating analysis was adequately reliable.

Applicable to SM10-7
Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

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 European Data Warehouse dated April 2015 (SM09-6 and SM10-7), May 2015 (SM09-6 Series 2) and June 2015 (SM07-5 and SM07-5 Series 2).
-Transaction reporting provided by BMPS as of July 2015 (Siena 10-7), May 2015 (Siena 09-6), March 2015 (Siena 09-6 Series 2) and July 2015 (SM07-5 and SM07-5 Series 2).

The rating actions are as follows:

Siena Mortgages 07-5 S.p.A. (SM 07-5)
Class A (ISIN IT0004304223): 'AA+sf'; maintained on RWN
Class B (ISIN IT0004304231): 'Asf'; maintained on RWN
Class C (ISIN IT0004304249): 'BBB-sf'; maintained on RWN

Siena Mortgages 07-5 S.p.A. Series 2 (SM 07-5 Series 2)
Class A (ISIN IT0004353808): 'AA+sf'; maintained on RWN
Class B (ISIN IT0004353816): 'Asf'; maintained on RWN
Class C (ISIN IT0004353824): 'BBB-sf'; maintained on RWN

Siena Mortgages 09-6 S.r.l. (SM 09-6)
Class A (ISIN IT0004488794): 'AA+sf'; maintained on RWN
Class B (ISIN IT0004488810): 'Asf'; maintained on RWN
Class C (ISIN IT0004488828): 'BBB-sf'; maintained on RWN

Siena Mortgages 09-6 S.r.l. Series 2 (SM 09-6 Series 2)
Class A (ISIN IT0004520646): 'A+sf'; maintained on RWN
Class B (ISIN IT0004520687): 'A-sf'; maintained on RWN

Siena Mortgages 10-7 S.r.l. (SM 10-7)
Class A3 (ISIN IT0004658289): affirmed at 'AA+sf', Outlook Stable