OREANDA-NEWS. Fitch Ratings has assigned Penates Funding NV/SA Compartment Penates-5's notes expected ratings as follows:

EUR[TBD] Class A1: 'AAAsf'(EXP); Outlook Stable
EUR[TBD] Class A2: 'AAAsf'(EXP); Outlook Stable
EUR[TBD] Class B: NR(EXP)
EUR[TBD] Class C: NR(EXP)

Final ratings are contingent upon the receipt of final documents conforming to information already received.

The notes are backed by a pool of Belgian prime residential loans issued to individual borrowers in Belgium and originated by Belfius Bank (Belfius; BBB+/Positive/F2). Credit enhancement for the class A1 and A2 notes totals 23.0% of the securitised pool and is provided by the subordination of junior notes as well as the reserve fund.

KEY RATING DRIVERS

Prime Residential Loans
Fitch Ratings has set a 'Bsf' weighted average frequency foreclosure (WAFF) for the pool of 3.2%. This reflects the strong historical performance of Belfius' mortgage loan portfolio. The previous Penates transactions also demonstrate a healthy performance. The WA original mortgage-to-value ratio of the Penates-5 portfolio is 80.5%, in line with previous Penates transaction and the Belfius mortgage cover pool. The portfolio is comprised of fixed-for-life rate loans only.

Non-Standard Hedging
There is no swap to hedge the interest rate differential between the floating rate notes and the fixed rate mortgage loans. Instead, the structure benefits from an interest rate cap until November 2020 (strike rate of 3.5%). Thereafter, the interest paid on the class A notes consists of the minimum of three-month Euribor plus a margin and a maximum rate.

Negative Carry Risk
Due to the mismatch between the fixed-rate portfolio and the floating rate on the notes, which is hedged (pre-first optional redemption date) or capped (post-first optional redemption date) only to a limited extent in a rising interest rate scenario, the transaction may be exposed to negative carry. The availability of a reserve fund and the use of principal to cover any interest shortfall mitigate this risk.

Servicing Continuity Risk
Belfius is the loan servicer. No back-up servicer has been appointed for the transaction at closing. However, servicing continuity risks are mitigated by a combination of several operational elements, including: arrangements as regards to the transfer of loan data and borrower information; notification events; the reserve fund; a commingling reserve available specifically to cover liquidity shortfalls and a back-up servicer facilitator.

RATING SENSITIVITIES
Expected impact upon the note rating of increased defaults (class A):
Original rating: 'AAAsf'
Increase default base case by 10%: 'AAAsf'
Increase default base case by 25%: 'AA+sf'
Increase default base case by 50%: 'A+sf'

Expected impact upon the note rating of decreased recoveries (class A):
Original rating: 'AAAsf'
Reduce recovery base case by 10%: 'AAAsf'
Reduce recovery base case by 25%: 'AA+sf'
Reduce recovery base case by 50%: 'AA-sf'

Expected impact upon the note rating of increased defaults and decreased recoveries (class A):
Original rating: 'AAAsf'
Increase default base case by 10%; reduce recovery base case by 10%: 'AA+sf'
Increase default base case by 25% and reduce recovery base case by 25%: 'AA-sf'
Increase default base case 50% and reduce recovery base case by 50%: 'BBB+sf'

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

DATA ADEQUACY
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch also conducted a review of a small targeted sample of Belfius' 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 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 Belfius as at 1 September 2015.
-Yearly origination volumes, monthly dynamic prepayment data, data on cumulated recovery and data on cumulative defaults from 2002 to 2015, provided by Belfius as at 31 March 2015.

MODELS
The models below were used in the analysis. Click on the link for a description of the model.
- Excel-based Residential Mortgage Asset Model
- EMEA Cash Flow Model

REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the presale report (see Penates Funding NV/SA Compartment Penates-5 - Appendix, dated 15 October 2015 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.