OREANDA-NEWS.  Fitch Ratings has assigned Mitchells and Butlers Finance plc's whole business securitisation (WBS) transaction interest rate and currency swap obligations ratings, as follows .

Mitchells & Butlers Finance Plc Interest Rate Swap: rated 'A+'; Outlook Stable
Mitchells & Butlers Finance Plc Cross Currency Swap: rated 'A+'; Outlook Stable

After the analysis of the swap agreements and related transaction documents, Fitch considers that the creditworthiness of the issuer's obligations under the interest rate and cross currency swaps are consistent with the long-term ratings of the most senior class of rated notes, as the swaps are expected to default with the notes under certain scenarios. The rating (and Outlook) of the swaps will therefore mirror the rating of the then most senior class of notes outstanding. The Stable Outlook reflects the strong free cash flow (FCF) debt service coverage ratios (DSCR) of the class A (most senior) notes with significant cushion relative to Fitch's indicative 'A' rating guidance for WBS transactions.

KEY RATING DRIVERS
The alignment of the swap ratings with that of the most senior class of notes outstanding is based on the ranking of payments to the hedging counterparties in the payment waterfall, where these are senior to debt service payments on the notes. In a distressed situation, Fitch expects that a note event of default would ultimately trigger a swap payment default. Following a note event of default, Fitch expects that the trustee would serve a note enforcement notice. As per the ISDA master agreement, this would result in a swap termination event which in turn would result in any Mark-to-Market (MtM) value of the swap becoming immediately due and payable. Forecasting future swap MtMs is beyond the scope of any applicable criteria and therefore Fitch conservatively assumes that there would be an issuer MtM liability. Given that there has been a note event of default, it is reasonable to assume that there would be no remaining cash within the securitised group available to pay the assumed MtM liability, resulting in a swap payment default. For this reason, despite the higher seniority, the probability of default of swap payment obligations is assumed to be in line with the probability of a note event of default occurring.

The ratings address the issuer's ability to make payments under the swap agreements as per the transaction documentation, excluding swap termination payments due to default or non-performance of the counterparty. The ratings also do not address events related to a change in law or taxation.

Fitch applied its 'Rating Criteria for UK Whole Business Securitisations', in addition to applying certain elements from its 'Criteria for Rating Currency Swap Obligations of an SPV in Structured Finance and Covered Bonds' relating to counterparty default and non-performance, tax events and illegality.

RATING SENSITIVITIES
As long as the counterparty continues to perform under the swap agreement, the ratings of the swap obligations are expected to remain equal to those of the most senior class of rated notes. In the event of non-performance by the swap counterparty, the ratings of the swaps could be withdrawn. Secondly, as the swap ratings are aligned with the rating of the most senior class of rated notes, any positive or negative rating action in relation to these notes would also be applied to the ratings of the swap obligations.

SUMMARY OF CREDIT
The rated interest rate and cross currency swaps provide interest rate and currency hedging for the floating rate and USD notes respectively in the Mitchells & Butlers Finance plc WBS.

Mitchells & Butlers Finance is a WBS of a portfolio of 1,424 managed pubs and pub restaurants in Britain owned and operated by Mitchells & Butlers Retail Ltd. (representing 80% of M&B Retail Ltd.'s pubs). At the latest transaction performance review (22 October 2015) Fitch affirmed the class A (most senior) notes at 'A+' with a Stable Outlook, reflecting strong FCF DSCR ratios with significant cushion at 3.0x and 2.4x, respectively, relative to Fitch's indicative 'A' rating guidance for whole business securitisation transactions of >1.95x.