OREANDA-NEWS. Fitch Ratings has upgraded 23 tranches of the Money Partners Series, a series of four UK non-conforming RMBS transactions, and affirmed 22 others. A full list of rating actions is available at www.fitchratings.com or by clicking the link above.

The Money Partners Series is a series of securitisations comprising non-conforming residential mortgages originated by Money Partners Holding Limited via its subsidiaries.

KEY RATING DRIVERS
Improving Asset Performance
Performance across the MPS transactions has historically been worse than other UK non-conforming peers. This can be attributed to the presence of second lien loans in their portfolios, which range between 7.6% (MPS 3) and 14% (MPS 4) of their respective outstanding balances. Second lien borrowers tend to pay a higher margin (on average five percentage points higher than that paid by first lien borrowers).

However, in recent periods, the transactions have reported an improvement in performance, a trend that is seen across the non-conforming sector and is driven by the current low interest rate environment impacting borrower affordability. In July 2015 loans in arrears by more than three months ranged between 14.6% (MPS1) and 19.9% (MPS4) compared with 19.6% (MPS3) and 24.1% (MPS4) 12 months ago.

Strong Credit Enhancement (CE)
Given the seasoning of the transactions these portfolios have amortised substantially, leading to a significant increase in credit enhancement across the structures. This has resulted in CE for the senior notes being 3.5x (MPS4) to 7.5x (MPS1) the levels at close. The outstanding senior notes across the structures are therefore well insulated at their current ratings, barring a shock adverse performance.

Pro-rata Amortisation
All MPS 1, 2, 3 and 4 are now amortising pro-rata, versus only MPS 2 and 3 12 months ago. This is due to the loans in arrears by more than three months falling below the trigger of 22.5%. We expect the performance of the transactions to continue to improve, thus pro-rata amortisation is expected to be a continued benefit for the junior notes of these transactions. Given the pro-rata amortisation and limited remaining collateral Fitch has conducted tests to ensure tail risks are mitigated.

Basis Risk Unhedged
The MPS 4 series comprises loans linked to Kensington Variable Rate (KVR) (26.5%) and Libor (73.5%) loans. The mismatch between KVR received on the KVR portion of loans and the Libor-paying notes is not hedged. Fitch believes that the KVR margin over Libor will be compressed in a rising interest rate scenario, as the servicer may not be able to increase the KVR at the same pace at which Libor is expected to rise. Fitch stressed the excess spread to account for this risk in its analysis and found the CE available to the rated notes to be sufficient to withstand such stresses.

Counterparty Exposure
RBS (BBB+/Stable/F2), the currency swap and Libor reset swap counterparty for MPS 2, 3, and 4, does not meet our eligibility threshold of 'A'/'F1' to support the 'AAAsf' and 'AAsf' rated notes without posting collateral. RBS is posting cash collateral, at eligible institutions, in line with its transaction documentation rather than Fitch's current counterparty criteria. As a result, Fitch has compared the collateral posted with that required by our current counterparty criteria and deducted the shortfall where required from the CE of the notes and found the CE available to the rated notes is sufficient to withstand such stresses.

RATING SENSITIVITIES
Fitch believes that expected increase in interest rates will put a strain on borrower affordability, particularly given the weaker credit profile of the borrowers in these pools. If defaults and associated losses increase beyond the agency's stresses, the junior tranches may be downgraded.

As the CE of the class B1 notes of MPS1 is entirely provided by the reserve fund, which is held with Barclays plc (A/Stable/F1) a change in the Issuer Default Rating of Barclays may lead to a corresponding change in rating on this rated tranche.

Fitch published an exposure draft for UK residential mortgage assumptions on 22 September 2015 (https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=871376). The proposed criteria, if adopted, will lead to smaller loss expectations for all types of mortgage portfolios. As a result, Fitch expects all outstanding UK RMBS and CVB ratings to either be affirmed or upgraded. If the current criteria are updated after considering market feedback, Fitch will review all existing UK RMBS ratings within six months of the new criteria publication.

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.

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 Kensington as at 31 May 2015 and 30 June 2015.
-Transaction reporting provided by Kensington as at 28 May 2015 and 30 June 2015
-Collateral information provided by RBS as at 24 September 2015.

MODELS
The model below was used in the analysis. Click on the link for a description of the model.
- EMEA RMBS Surveillance Model