OREANDA-NEWS. Fitch Ratings affirmed Securitized Guaranteed Mortgage Loans' (SGML) class A notes (ISIN NL0006477739) at 'AAAsf' with a Stable Outlook.

The transaction is fully backed by a portfolio of NHG loans originated by Achmea (A/Negative/F1) in the Netherlands.

KEY RATING DRIVERS
Excessive Counterparty Exposure Mitigated
The reserve fund (RF), which stands at 8.7% of the current note balance, is the only source of credit enhancement (CE) for the class A notes. The funds are deposited in the account bank held with Bank Nederlansde Gemeenten (BNG; AA+/Stable/F1+), thus creating high reliance on BNG. Fitch has tested the ability of the structure to withstand the loss of the RF, which would result in a downgrade of more than 10 notches. In line with its criteria for structured finance transactions, the agency views the transaction as having excessive direct counterparty dependency on BNG, which would imply a rating cap at the Long-term Issuer Default Rating (IDR) of BNG.

Fitch took into consideration a combination of factors in mitigation of this exposure when deriving its rating on the notes. Firstly, the sound credit quality of the underlying loans in the portfolio, which is fully backed by NHG guarantees. Secondly, the performance of the portfolio has been sound, with loans in arrears by more than 90 days at 68bp of the current portfolio and cumulative losses seven years after transaction close at a minimal 5bp of the original collateral balance.

We believe these factors in combination with the high creditworthiness of the account bank, BNG, are sufficient to support the rating of the notes. The bank is fully state-owned with mainly public sector assets and is strategic for the Dutch government. As a result, the agency decided to apply an exception from its structured finance counterparty criteria with relation to excessive direct counterparty dependency.

Interest Only (IO) Loan Concentration
The transaction has a concentration of more than 20% of IO loans maturing within a three-year period. As per criteria, Fitch carried out a sensitivity analysis assuming a 50% default probability for these loans and found that current credit enhancement is able to accommodate such stresses.

Insurance Policy Set-Off
The mortgages backed by insurance policies are exposed to insurance set-off risk in case of insolvency of the policy providers. In case of policy provider insolvency, borrowers may seek to set-off their mortgage payments against premiums paid under the insurance policies. Consequently, in its analysis Fitch assumed that borrowers exercise their right to set-off by increasing the expected loss derived in its EMEA RMBS Surveillance model across all rating scenarios by the exposure amount. The analysis showed that the larger expected losses had no effect on the notes' rating, as reflected in today's affirmation.

RATING SENSITIVITIES
A downgrade of BNG and/or the Dutch sovereign IDR would cause Fitch to reassess its decision to apply an exception to its counterparty criteria and may lead to negative rating actions.

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 transaction's 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 the European Data Warehouse as at 30 June 2015
-Transaction reporting provided by Intertrust as at 27 July 2015
-Discussion and updates provided by Achmea as at October 2015