OREANDA-NEWS. Fitch Ratings is maintaining four prime Italian RMBS transactions originated and serviced by Banca Monte dei Paschi di Siena (BMPS, rated B-/OutS/B) on Rating Watch Negative (RWN) as follows:

Siena Mortgages 07-5 S.p.A. (SM07-5)
Class A (ISIN IT0004304223): 'AA+sf'; remains on RWN
Class B (ISIN IT0004304231): 'Asf'; remains on RWN
Class C (ISIN IT0004304249): 'BBB-sf'; remains on RWN

Siena Mortgages 07-5 S.p.A. Series 2 (SM07-5 Series 2)
Class A (ISIN IT0004353808): 'AA+sf'; remains on RWN
Class B (ISIN IT0004353816): 'Asf'; remains on RWN
Class C (ISIN IT0004353824): 'BBB-sf'; remains on RWN

Siena Mortgages 09-6 S.r.l. (SM09-6)
Class A (ISIN IT0004488794): 'AA+sf'; remains on RWN
Class B (ISIN IT0004488810): 'Asf'; remains on RWN
Class C (ISIN IT0004488828): 'BBB-sf'; remains on RWN

Siena Mortgages 09-6 S.r.l. Series 2 (SM09-6 Series 2)
Class A (ISIN IT0004520646): 'A+sf'; remains on RWN
Class B (ISIN IT0004520687): 'A-sf'; remains on RWN

KEY RATING DRIVERS
Remedial Actions Imminent
BMPS has submitted detailed remedial actions for each transaction in the series to mitigate the exposure to interest rate risk resulting from the ineligibility of the swap counterparty (BMPS). The actions involve structural changes to the interest rate paid on the liabilities. Fitch has analysed the remedial actions and found that, if implemented, they can effectively mitigate interest rate risk. The agency has also received drafts of the amended transaction documents and is currently in the process of reviewing them. Nevertheless, Fitch has maintained the notes under RWN because the final transaction amendments are yet to be finalised and executed. The agency expects the transactions documents to be amended in January 2016, and to resolve the RWN shortly after.

Fitch placed the notes on RWN in June 2015 after BMPS became ineligible to act as swap counterparty in the wake of its downgrade to 'B-'/Stable/'B'. The support provided by the swap in each deal is material given that the transactions feature a prominent exposure, between 55% and 95% of the current portfolio balance, to fixed-rate loans, mixed-rate and optional loans as well as floating-rate loans with a cap.

The notes would be vulnerable to a scenario in which the swap counterparty defaults, increasing interest rates trigger the switch of all optional loans to fixed rate and, at the same time, the average coupon on the notes exceeds the portfolio yield. In Fitch's view, interest rate risk is limited in the short term because Fitch does not expect interest rates to materially increase.

Payment Interruption Risk Remedial Action
Fitch has analysed remedial actions also regarding the mitigation of payment interruption risk in SM09-6 Series 2. Specifically, the originator intends to top up the cash reserve to at least EUR55.6m from the current level of EUR5.6m. BMPS plans to transfer EUR50m from the commingling reserve account to the cash reserve ledger. The non-amortising commingling reserve will be halved to EUR50m.

In its analysis, Fitch found that, if replenished, the larger cash reserve together with the appointed back-up servicer (Securitisation Services) and the possibility to utilise the commingling reserve (for a maximum amount corresponding to the realised loss of funds if BMPS goes through a disorderly default) can adequately mitigate payment interruption risk at the current rating levels. Commingling risk is also considered sufficiently mitigated by the remaining dedicated reserve.

Fitch has also yet to receive the final amendment agreement, which it expects will be executed in January 2016, and is therefore maintaining SM09-6 Series 2 on RWN.

RATING SENSITIVITIES
Failure to mitigate the exposure to interest rate risk would trigger multi-category downgrades in each transaction.

Failure to mitigate payment interruption risk in SM09-6 Series 2 would trigger multi-category downgrades for each rated tranche.

Mitigation of payment interruption risk in SM09-6 Series 2 is also highly sensitive to the structural changes implemented on the liabilities, as the latter impacts the cash reserve's coverage ratio. The implementation of the structural remedial actions in a form less effective than the one presented to Fitch may lead to unmitigated payment interruption risk and to multi-category downgrades of SM09-6 Series 2.

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 portfolios 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 pools 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.
-Discussions with BMPS over the last three months, including detailed descriptions of the remedial actions.
-First draft of the amendment agreements.