OREANDA-NEWS. Fitch Ratings has upgraded two and affirmed 16 tranches of the Clavis RMBS series. A full list of rating actions is available at the end of this rating action commentary.

The Clavis transactions are securitisations of UK non-conforming loans, originated by GMAC-RFC Limited.

KEY RATING DRIVERS
Steady Build-up of Credit Enhancement
The robust performance of both transactions has led to pro-rata amortisation of the notes. The reserve fund for Clavis 2006 has amortised to its floor level, while the reserve fund of Clavis 2007 is no longer allowed to amortise as a result of a breach of the cumulative repossession trigger (set at 2.25% of the initial portfolio balance). As a result, credit enhancement (CE) across the series has continued to build up steadily. In particular, Fitch believes the build-up of CE on the M1 tranches of Clavis 2006 can now sustain higher ratings stresses, resulting in today's upgrades.

Solid Performance
The portfolios in both transactions were formed via positive selection of GMAC-originated loans and are considered to be of near-prime nature. The better-than-average characteristics of the underlying borrowers have contributed towards the robust performance of the series as reflected in today's affirmations. As of September 2015 the volume of loans in arrears by more than three months remained between 3.9% (Clavis 2006) and 6.3% (Clavis 2007) of their respective portfolio balances. These levels remain below the UK non-conforming average of 9.6%.

If CE continues to build up and performance remains solid the M2 and B notes of Clavis 2006 may be upgraded in the next 12 to 18 months, as reflected in today's Positive Outlooks.

Unhedged Interest Rate Risk
Unlike Clavis 2006, Clavis 2007 is not hedged against the basis risk between the LIBOR-linked notes and BBR mortgages. In its analysis, Fitch stressed the excess spread to account for this risk and found the CE available to the rated notes sufficient to withstand the stresses.

Interest-only Concentration
The transactions have material concentration of interest-only loans maturing within a three-year period during the lifetime of the transaction. As per its criteria, Fitch carried out a sensitivity analysis assuming a 50% default probability for these loans. No rating action was deemed necessary as a result of the interest-only loan concentration. Nevertheless, Fitch will keep monitoring this risk as the transactions continue to amortise.

Currency Swap Obligations
The affirmation of the currency swap ratings are based on Fitch's view that the swap payment obligations rank pro rata and equally with the referenced notes. Consequently, the credit profiles of the currency swap payment obligations are consistent with the long-term rating on the referenced notes.

RATING SENSITIVITIES
The transactions are backed by floating-interest-rate loans. In the current low interest rate environment, borrowers are benefiting from low borrowing costs. An increase in interest rates could lead to performance deterioration of the underlying assets and consequently downgrades of the notes if defaults and associated losses exceed those of Fitch's stresses.

A change to the rating of the corresponding notes will likely lead to an equal change in the rating of the SPV's currency swap obligations. The rating sensitivity will primarily be driven by the rating analysis applicable to the corresponding note. The rating of the SPV's currency swap obligations will be withdrawn if the currency swap agreement is terminated due to non-performance by the swap counterparty or a non-credit related event.

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 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 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 Bluestone (Bluestone Group acquired Basinghall Finance in December 2014, and subsequently renamed the business as Bluestone Mortgages) for both deals with a cut-off date of 31 August 2015
-Transaction reporting provided Bluestone for both deals since close and until September 2015

The rating actions are as follows:

Clavis Securities plc Series 2006-01:
Class A3a (ISIN XS0255457706): affirmed at 'AAAsf'; Outlook Stable
Class A3b (ISIN XS0255438748): affirmed at 'AAAsf'; Outlook Stable
Class M1a (ISIN XS0255424441): upgraded to 'AA+sf'; from 'AAsf'; off Rating Watch Positive (RWP); Outlook Stable
Class M1b (ISIN XS0255439043): upgraded to 'AA+sf'; from 'AAsf'; off RWP; Outlook Stable
Class M2a (ISIN XS0255425414): affirmed at 'Asf'; Off RWP; Outlook Positive
Class B1a (ISIN XS0255425927); affirmed at 'BBBsf'; Off RWP; Outlook Positive
Class B1b (ISIN XS0255440728); affirmed at 'BBBsf'; Off RWP; Outlook Positive
Class B2a (ISIN XS0255426818); affirmed at 'BBsf'; Off RWP; Outlook Stable

Clavis Securities plc Series 2007-01:
Class A3a (ISIN XS0302268361): affirmed at 'AAAsf'; Outlook Stable
Class A3b (ISIN XS0302269096): affirmed at 'AAAsf'; Outlook Stable
Class A3b currency swap: affirmed at 'AAAsf'; Outlook Stable
Class AZa (ISIN XS0302268445): affirmed at 'AAAsf'; Outlook Stable
Class M1a (ISIN XS0302269682): affirmed at 'AAsf'; off RWP; Outlook Stable
Class M1b (ISIN XS0302270854): affirmed at 'AAsf'; off RWP; Outlook Stable
Class M2a (ISIN XS0302270185): affirmed at 'Asf'; off RWP; Outlook Stable
Class M2b (ISIN XS0302271662): affirmed at 'Asf'; off RWP; Outlook Stable
Class M2b currency swap: affirmed at 'Asf'; off RWP; Outlook Stable
Class B1a (ISIN XS0302270268): affirmed at 'BBBsf'; off RWP; Outlook Stable
Class B1b (ISIN XS0302271829): affirmed at 'BBBsf'; off RWP; Outlook Stable
Class B1b currency swap: affirmed at 'BBBsf'; off RWP; Outlook Stable
Class B2 (ISIN XS0302270342): affirmed at 'BBsf'; off RWP; Outlook Stable.