OREANDA-NEWS. Fitch Ratings has assigned Albion No.3 Plc the following ratings:

GBP 325,000,000 Class A floating-rate notes: 'AAAsf', Outlook Stable
GBP 45,391,100 Class Z VFN floating-rate notes: not rated

This transaction is a securitisation of residential owner-occupied mortgages, originated in England, Scotland and Wales by Leeds Building Society (LBS; A-/Stable/F1). This is the fourth standalone pass-through UK RMBS transaction from LBS.

Initial credit enhancement for the class A notes at 12.5% is provided by the subordination of the class Z VFN and a reserve fund.

KEY RATING DRIVERS

Non-'A'/'F1'-Rated Counterparties
LBS is the transaction account bank, and the transaction documents stipulate a minimum account bank rating of 'BBB-'/'F2'. This is below the minimum counterparty rating in Fitch Ratings criteria of 'A'/'F1'. To account for this, we have assumed the default of LBS and loss of four months of borrower collections in our cash flow analysis. The reserve fund is held with an 'A'/'F1' rated counterparty.

As a mitigating factor to the loss of available funds from a LBS default, to the extent LBS is downgraded to below 'BBB+'/'F2', a liquidity reserve will be funded with principal available funds to protect the transaction from potential payment interruptions. Fitch also takes comfort from the provision to appoint a back-up servicer if LBS are downgraded below 'BBB-'.

Borrowers Risk Payment Shock
The majority of loans currently pay a fixed interest rate around 3% that will at the end of the fixed rate period switch to LBS's standard variable rate (SVR), which is currently 5.69%. When borrowers come to the end of their fixed rate periods, (up to five years) they may be at risk of payment shock, given the large difference between the fixed rate and the SVR. While LBS takes into account interest rates increasing to over 7.5% in its affordability calculation, Fitch has nevertheless accounted for this by increasing the frequency of foreclosure of the loans by 10%.

Historical Performance
With 0.03% of outstanding loans in three-month plus arrears, Albion 2 has performed better than the Fitch prime index (three-month plus arrears of 1.3%). However, given this has been in a fairly benign period and the performance of LBS's overall historical mortgage book has been below the peer average, Fitch has increased the frequency of foreclosure of the loans by 5%.

High Quick Sale Adjustment
The sale prices for sold repossessions on LBS's mortgage book were lower than expected compared with UK peers. Consequently, Fitch has applied a higher quick sale adjustment (QSA), which results in lower recovery rates for the pool.

RATING SENSITIVITIES

Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the weighted average (WA) foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'A+sf'.

More detailed model implied rating sensitivity can be found in the presale report which is available at www.fitchratings.com.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

The collateral review of the mortgage portfolio involves reviewing loan-by-loan loss severity information on the originator's sold repossessions, during which the agency determines the originator's experienced loss severity rate and QSA. Fitch received repossession information for approximately 1,137 sold repossessions originated by LBS. The observed QSA was above Fitch's standard assumptions and therefore the QSA assumptions were increased to 21% from 17% for owner-occupied houses, to 30% from 25% for owner-occupied flats and to 25% from 17% for owner-occupied bungalows.
LBS provided Fitch with a loan-by-loan data template and all relevant fields were provided in the data tape. Performance data on historical static and dynamic arrears was provided on LBS's prime mortgage book, covering 2005 to 2014.

During the previous 12 months, Fitch conducted a site visit to LBS offices and conducted a file review to check the quality of LBS originations. During the site visit, Fitch conducted a review of a small targeted sample of the originator 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.

Fitch reviewed the results a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

To analyse the CE levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structure stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that the class A notes could withstand losses at levels corresponding to the 'AAA' stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.

Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool 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 Leeds as at 14 September 2015
-Transaction reporting provided by Leeds as at 17 August 2015
-Loan enforcement details provided by Leeds as at 30 June 2015
-Loan performance data provided by Leeds as at 30 June 2015

MODELS

The models below were used in the analysis. Click on the link for a description of the model.

ResiEMEA
https://www.fitchratings.com/jsp/creditdesk/ToolsAndModels.faces?context=2&detail=135

EMEA Cash Flow Model
http://www.fitchratings.com/web_content/pages/sf/emea-cash-flow-model.htm

REPRESENTATIONS AND WARRANTIES

A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms with those typical for that asset class is available in the appendix that accompanies the new issue report (see Albion No.3 plc - Appendix, at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.