OREANDA-NEWS. Fitch Ratings has affirmed all tranches in Bluestone Securities Plc, Series 2006-01 (BS 2006), and upgraded 4 and affirmed 2 tranches in Bluestone Securities Plc, Series 2007-01 (BS 2007).

The Bluestone series are securitisations of UK non-conforming residential mortgage loans originated by Amber and Beacon Homeloan Limited. A full list of rating actions follows at the end of this ratings action commentary.

KEY RATING DRIVERS

Sufficient Credit Enhancement
The available credit enhancement (CE) allows Fitch to affirm all ratings in BS 2006 and class D notes' rating in BS 2007. Also, the increase of CE levels in BS 2007 supports an upgrade of the class A2, Az, B and C notes.

The credit support is provided by the collateral assets as well as by reserve funds, which remain fully funded in both transactions. Fitch expects CE for BS 2007 to increase further as the notes amortise sequentially.

Diverging Asset Performance
The original balance of loans whose collateral has been repossessed are reported at 14.5% of the original pool balance in BS 2006, up 40bps since June 2014, while realised losses are unchanged at 3.9%. In BS 2007, repossessions increased 1.13pp to 13.3% over the same period, while losses went up 20bps to 3.6%. Late arrears (loans with more than 3 monthly instalments overdue) are reported at 12.7% of the outstanding portfolio balance in both series. Compared to June 2014, it represents a 3.2pp and a 1.3pp rise in BS 2006 and BS 2007 respectively.

Fitch notes that the Bluestone deals currently perform worse than the UK Non-Conforming RMBS Index, whose late arrears, repossessions and realised losses are reported at 9.7%, 10.5% and 2.9% respectively. The worse-than-average performance of these deals can be explained by the fact that the collateralised assets were originated in 2006 and 2007. House price decline from the peak negatively affects the borrowers' willingness to repay their mortgages and leads to a higher weighted average loss severity (27.5% in BS 2006 and 29.9% in BS 2007 as compared to 25% reported on the Index).

Currency Swap Counterparty Downgraded Below Minimum IDR in BS 2007
Following the downgrade of Unicredit Bank AG (Unicredit) to 'A-/F2', the bank must post collateral in order to support 'AAAsf' rated notes. Fitch confirms that the collateral amount posted by Unicredit is sufficient to satisfy the agency's criteria.

RATING SENSITIVITIES

With 100% borrowers on variable-rate mortgages, an increase in interest rates could lead to performance deterioration of the underlying assets given the weaker profile of non-conforming borrowers in these pools and, consequently, downgrades of the notes if defaults and associated losses exceed Fitch's stresses.

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 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 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.

SOURCES OF INFORMATION

The information below was used in the analysis:
--Loan-by-loan data provided by Unicredit Bank AG as at May 2015
--Transaction reporting provided by BNY Mellon as at June 2015

The rating actions are as follows:

Bluestone Securities plc Series 2006-1(Bluestone 2006):
Class A1 (ISIN XS0264881508) affirmed at 'AAAsf'; Outlook Stable
Class A2 (ISIN XS0264881920) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0264882654) affirmed at 'Asf'; Outlook Stable
Class C (ISIN XS0264882902) affirmed at 'BBsf'; Outlook Stable
Class D (ISIN XS0264883207) affirmed at 'Bsf'; Outlook Stable
Class E (ISIN XS0264883546) affirmed at 'CCCsf'; Recovery Estimate (RE) of 95%

Bluestone Securities plc Series 2007-1 (Bluestone 2007):
Class A2 (ISIN XS0300920237) upgraded to 'AAAsf' from 'AA+sf'; Outlook Stable
Class Az (ISIN XS0300920583) upgraded to 'AAAsf' from 'AAsf'; Outlook Stable
Class B (ISIN XS0300920823) upgraded to 'BBB+sf' from 'BBB-sf'; Outlook Stable
Class C (ISIN XS0300921128) upgraded to 'BBsf' from 'BB-sf' '; Outlook Stable
Class Da (ISIN XS0300921474) affirmed at 'CCCsf'; RE of 95%
Class Db (ISIN XS0301241039) affirmed at 'CCCsf'; RE of 95%