OREANDA-NEWS. Fitch Ratings has taken rating actions on four bond funds managed by ECM Asset Management Limited (ECM), an affiliate of Wells Fargo Asset Management (WFAM). The list of rating actions is as follows:

Diversified European Credit S.A. (DEC) and European Credit Luxembourg S.A. (ECL)
Fund Credit Quality Rating affirmed at 'BBB-'; Fund Volatility Rating affirmed at 'V4'

Diversified Financials Europe S.A. (DFE)
Fund Credit Quality Rating affirmed at 'BBB-'; Fund Volatility Rating affirmed at 'V5'; both ratings withdrawn.

Pan European Credit S.A. (PEC)
Fund Credit Quality Rating affirmed at 'BBB'; Fund Volatility Rating downgraded to 'V4' from 'V2'; both ratings withdrawn.

KEY RATING DRIVERS
The key rating driver of the affirmation of the Fund Credit Ratings is the current and prospective weighted average credit quality of each funds' portfolio, which is consistent with Fitch's credit quality guidelines for funds rated in the 'BBB' rating category. The negative modifier to the Fund Credit Ratings of DEC and DFE reflect their ability to invest a portion of the portfolio below the 'BBB' rating category.

The Fund Volatility Ratings of ECL, DEC and DFE are underpinned by the systematic interest rate and currency hedging of these funds' portfolios. The downgrade of PEC's Volatility Rating reflects the fund's increased market risk, resulting from interest rates no longer being hedged.

Leverage in these funds, where allowable, has been maintained at low levels during 2015 to date. Despite this, Fitch has calibrated the Fund Volatility Ratings to higher leverage levels, with the result that the ratings are more conservative than would be suggested by the funds' current market risk profiles.

Fitch has chosen to withdraw the Fund Credit Ratings and Fund Volatility Ratings of DFE and PEC for commercial reasons. Accordingly, Fitch will no longer provide ratings or analytical coverage on these funds. Fitch continues to rate ECL and DEC.

ASSET CREDIT QUALITY
The weighted average rating factors (WARFs) of DEC, PEC, ECL and DFE are consistent with a Fund Credit Rating in the 'BBB' rating category. Fitch's rating criteria considers the current rating profile of each fund, in addition to the fund's investment guidelines. The funds' portfolios are currently concentrated in securities in the 'BBB' and 'A' rating categories.

DEC's, ECL's and DFE's 'BBB-' ratings reflect their respective investment guidelines, which, unlike for PEC, allows for a portion of investments to be made in the speculative-grade category.

PORTFOLIO SENSITIVITY TO MARKET RISKS
ECM systematically hedges interest rate risk for DEC, ECL and DFE, which effectively minimises interest rate risk. Since August 2015, interest rate risk is no longer hedged for PEC.
Spread risk has increased in the portfolios over the past year, as measured by spread duration. Leverage has remained negligible across the funds.

However, leverage can be increased in the funds (with the exception of PEC), to a maximum of between 1x to 3x net asset value (depending on each funds' investment guidelines). The Fund Volatility Ratings reflect the potential for the investment manager to increase leverage to the maximum permissible levels allowed.

On the basis of current spread duration and hedged interest rates risk, DEC's and ECL's market risk profile is consistent with a 'V4' Fund Volatility Rating and DFE with 'V5'. The market risk of PEC has increased since interest rates risk was unhedged from August 2015, leading to today's downgrade in its Fund Volatility Rating to 'V4' from 'V2'.

FUND PROFILES
All funds are Luxembourg-domiciled medium-term note issuing programmes (Societes Anonymes). All of the funds invest primarily in European investment-grade credits. The funds are highly diversified and are hedged against interest rate (except PEC) and currency risk. All of the funds can take short positions (except PEC). The funds can use leverage (except PEC), which is typically generated through repurchase agreements.

Total net assets under management (measured by DeNAV) in each fund were approximately EUR83m in DEC, EUR313m in ECL, EUR97m in PEC and EUR3m in DFE as of end-October 2015. Brown Brothers Harriman & Co (A+ / Stable / F1) became the custodian and administrator of the funds in July 2015.

INVESTMENT ADVISOR
Founded in 1999, ECM is owned by Wells Fargo & Co (AA-/Stable/F1+), and is authorised and regulated by the FCA. ECM is an affiliated investment advisor of Wells Fargo Asset Management (WFAM), the trade name used by the asset management businesses of Wells Fargo & Co. WFAM employed 400 people and had USD348bn assets under management as at end-June 2015.

RATING SENSITIVITIES AND SURVEILLANCE
Funds in the 'BBB' rating category are considered to have sound underlying credit quality. The fund's assets are expected to maintain a weighted-average rating of 'BBB'.

Funds rated 'V4' are expected to have "moderate" or "moderate-to-high" sensitivity to market risk. Funds rated 'V5' are expected to have high sensitivity to market risk. The Fund Volatility Rating does not address the sensitivity of a bond fund to extreme risks that may result from reduced liquidity in secondary markets during certain periods of time.

The ratings may be sensitive to material changes in the funds' credit quality or market risk profile. A material adverse deviation from Fitch's guidelines for any key rating driver could cause Fitch to downgrade the ratings. A material change to the investment advisor's interest rate risk hedging policy would be expected to negatively affect the Fund Volatility Ratings. A material increase in spread duration for these funds from the current levels, combined with credit deterioration, may also result in downgrades to the Fund Volatility Ratings. A material decline in the funds' credit quality may lead to a downgrade to the Fund Credit Rating.

Conversely, should the investment adviser elect to revise the investment guidelines limiting the maximum potential leverage level allowable in the funds then this would, all things being equal, positively impact the Fund Volatility Ratings.

To maintain the bond fund ratings, ECM provides Fitch with regular portfolio information, including details of the portfolio's holdings and credit quality. Fitch closely monitors the credit composition of the portfolios and the overall market risk profile of the investments.

The sources of information used to assess this rating were the public domain and ECM.