OREANDA-NEWS. Fitch Ratings has affirmed Annington Finance No.1 plc (Annington 1) and Annington Finance No.4 plc (Annington 4) as follows:

Annington 1:
GBP214.8m 8% secured bonds due 2021 (XS0070337372) affirmed at 'AA+sf'; Stable Outlook

Annington 4:
GBP1,400m class A due 2022 (XS0083080043) affirmed at 'AAsf'; Stable Outlook GBP943.6m class B1 due 2023 (XS0083098763) affirmed at 'Asf'; Stable Outlook
GBP0.0m class B3 due 2023 (XS0198259813) affirmed at 'Asf'; Stable Outlook
GBP246m class M due 2023 (XS0198259904) affirmed at 'A-sf'; Stable Outlook
GBP150m class C1 due 2023 (XS0143398179) affirmed at 'BBBsf'; Stable Outlook

Annington 1 is a securitisation of rental income from the UK central government. Annington 4 is a securitisation of a portfolio of residential properties located on or close to military bases across England and Wales, with a concentration around London and the south of England.

KEY RATING DRIVERS
Stable Sovereign Rating
The rating of Annington 1 is credit-linked to the UK's sovereign rating (AA+/Stable) and so has been affirmed.

Stable Rental Income
The affirmation of Annington 4 reflects the stable income profile of the property portfolio and the continued deleveraging of the notes from rental proceeds and property sales. The property portfolio consisted of 39,571 residential units as of October 2015, down from 39,832 at the same point in 2014.

The Ministry of Defence (MoD) pays annual rent of around GBP166m, which is used to service debt on Annington 4 after accounting for the guaranteed payment on the credit-linked Annington 1 transaction (GBP55.7m for 2015, reducing to GBP52.9m for 2016). With the addition of sales proceeds and dilapidation payments (totalling, GBP54.4m over the last four payment periods), the current reported debt service coverage ratio (DSCR) is 8.6x, up from 4.5x one year earlier. The significant increase in DSCR is due to the switch from a fixed rate of interest to a lower floating rate on the class M notes from April 2015.

Counterparty Risk
RBS provides the bank accounts in both transactions and was downgraded by Fitch to 'BBB+'/Stable/'F2' in May 2015. Fitch's counterparty criteria indicates that such a counterparty needs to be rated A-/F2 to support securitisation note ratings in the AAsf category. Therefore the agency tested the effect on the transactions of the default of the bank account provider and the resulting loss of funds available to the issuers. Fitch assumed that three-month's rental payments would be lost before the funds could be redirected to a new account.

Under this scenario, the liquidity facility available (GBP14.1m on Annington 1 and GBP9.8m on Annington 4) to service debt on each transaction is sufficient to cover at least one quarter of debt service (GBP13.4m on Annington 1 and GBP4.4m on Annington 4 projected for January 2015). Excess income generated by the Annington portfolio after payment of debt service was GBP33.5m at the last interest payment date (IPD), suggesting that any liquidity facility drawing could be repaid on the following IPD. Therefore, Fitch's ratings of the Annington notes are not capped by the rating of the account bank provider.

RATING SENSITIVITIES
A change in the UK sovereign rating will result in a corresponding rating action on Annington 1. A significant decline in home prices and/or rental levels could affect the ratings of Annington 4. The unlikely event of MoD handing back the majority of its portfolio to Annington (reducing the payable rent and over-supplying the market, hence putting downward pressure on rental and sales values) could also result in negative rating action.

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 pool and the transaction. 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 pool ahead of the transaction's initial closing. The subsequent performance of the transaction 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.
- Transaction reporting provided by Annington as at 12 October 2015