OREANDA-NEWS. Fitch Ratings has assigned Tombac No.2 PLC's notes final ratings, as follows:

GBP1,250,000,000 Class A: 'AAAsf', Outlook Stable
*GBP500,000,000 Class Z VFN: not rated

*The Class Z VFN amount is the maximum amount this note can be increased to. The amount at closing is GBP184.5m of which GBP37.7m is used to fund the reserve fund.

This transaction is a securitisation of prime residential owner-occupied mortgages, originated in England and Wales by Accord Mortgages Limited (Accord), a wholly owned subsidiary of Yorkshire Building Society (YBS). This is the sixth standalone pass-through UK RMBS transaction from Accord.

KEY RATING DRIVERS
Newly Originated Pool
This is a static 15-month-seasoned pool; 97% was originated in 2014 and 2015. The weighted average original loan-to-value (WA OLTV) ratio is 75.5%; the Fitch-calculated WA debt-to-income (DTI) is 47.5% - both slightly above average for building society pools. The pool has no interest-only loans, fewer self-employed borrowers (2.6%) than the average UK transaction, and more first-time buyers (40.2%). Performance of previous Accord transactions has generally been in line with the UK market average.

Non-'A'/'F1'-Rated Account Bank
YBS is the collection account bank, issuer account bank and guaranteed investment contract (GIC) provider, and the transaction documents stipulate the minimum account bank rating at 'BBB-'/'F2'. This is below the minimum counterparty rating in Fitch's criteria of 'A'/'F1', and based on the monthly interest payment dates (IPD) the agency has assumed a total of two months of principal and interest receipts lost due to commingling. A separate reserve fund account is held with Citibank, N.A., which meets the minimum rating in Fitch's criteria.

Payment Shock Risks Modelled
All loans in the provisional pool are fixed-rate. At the end of their remaining teaser period, all loans will pay an interest rate linked to the standard variable rate (SVR) set by Accord, currently 5.79%. The Accord SVR is one of the highest among prime lenders in the UK. Fitch has therefore factored in a potential payment shock to borrowers in its foreclosure frequency assumptions stemming from the reversion to SVR.

High Excess Spread
A fixed/floating interest rate swap hedges fixed-rate loan receipts to floating-rate note payments. The SVR loans will remain unhedged. The WA post-swap margin for the fixed-rate loans in the portfolio is 1.93%. This margin will increase when the loans revert to the SVR. Accord's high SVR (5.79%) and the margin on the class A notes (one-month GBP Libor + 0.78%) mean the transaction is likely to generate high excess spread throughout its lifetime. However, Fitch conservatively stressed the excess spread by assuming an SVR margin over Libor of 3% in a rising interest rate scenario.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'AA+sf' from 'AAAsf'.

More detailed model implied ratings sensitivity can be found in the new issur report which is available at www.fitchratings.com.

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

DATA ADEQUACY
Accord provided Fitch with a loan-by-loan data template. The data quality and availability was solid, with no material data fields missing.

The collateral review of the mortgage portfolio involves reviewing loan-by-loan loss severity information on the originator's sold repossessions, during which the agency determines the originator's experienced loss severity rate and quick sale discount. Fitch received repossession information for about 3,035 loans originated by Accord. The quick sale adjustment for houses repossessed by Accord was in line with Fitch's standard assumption of 17%. The quick sale adjustment for flats was 27%, which is higher than Fitch's standard assumption of 25%. The agency therefore applied an adjustment to the quick-sale adjustment for repossessed flats.

During the previous 12 months, Fitch conducted a site visit to YBS's offices and a file review to check the quality of Accord's originations. During the site visit, Fitch conducted a review of a small targeted sample of the originator's 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.

Fitch also reviewed the results of an agreed-upon procedures report conducted on the portfolio. This report checked the accuracy of the data file provided to Fitch for its rating analysis. Approximately 5% of the loans had errors in the borrower income field provided in the data tape. Fitch has adjusted a certain percentage of the pool's income downwards to take this into account.

Overall and together with the assumptions referred to above, 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.

To analyse the CE levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by YBS as at 21 December 2015
- Loan enforcement details provided by YBS as at 2 September 2015
- Loan performance data provided by YBS as at 2 September 2015

MODELS
The models below were used in the analysis. Click on the link for a description of the model.
ResiEMEA
http://www.fitchratings.com/jsp/creditdesk/ToolsAndModels.faces?context=2&detail=135

EMEA Cash Flow Model
http://www.fitchratings.com/web_content/pages/sf/emea-cash-flow-model.htm

REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for that asset class is available by accessing the appendix that accompanies the new issue report (see " Tombac No.2 PLC - Appendix ", 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.