OREANDA-NEWS. Fitch Ratings has upgraded 14 tranches and affirmed 54 tranches of nine Eurosail UK transactions. The transactions are securitisations of UK non-conforming residential mortgages, originated by Southern Pacific Mortgage Limited, Preferred Mortgages Limited and Alliance and Leicester Plc. 

KEY RATING DRIVERS
Stable Asset Performance
The asset performance has remained stable over the past 12 months with signs of arrears levels decreasing towards the end of 2015 across all transactions. In Fitch's opinion, this is mainly a result of the continued low interest rate environment, which is supporting borrower affordability. In terms of arrears, as at December 2015, Eurosail-UK 2007-A and Eurosail-UK 2007-5 have been the stronger performers with three month plus arrears over the past year averaging around 0.8% and 10%, respectively. Eurosail-UK 2007-1 and Eurosail-UK 2006-3 are weaker performers, with three month plus arrears averaging 27% and 26%, respectively. The Fitch UK Non-Conforming Index is averaging around 10%.

Credit Enhancement Build-up
All transactions except for Eurosail-UK 2007-A and Eurosail-UK 2007-6 continue to pay down sequentially due to breaches of pro-rata amortisation triggers. This has allowed continued build up in credit enhancement for the rated notes, which is sufficient enough to withstand higher rating stresses resulting in the affirmations and upgrades.

Bank of England Base Rate Loans (BBR) and Standard Variable Rate Loans (SVR)
All pools contain loans linked to BBR, SVR or a combination of both. Fitch has applied a haircut to the excess spread available for the rated notes in line with its criteria. The analysis showed that even with reduced excess spread, the current credit enhancement was sufficient to withstand the stress.

Reserve Fund Below Target
Fitch notes that the reserve funds for Eurosail-UK 2006-4 and Eurosail-UK 2007-2 remain below their targets levels. This is because interest payments due to the liquidity facility provider were paid out of the reserve funds. Both reserve funds were topped up on the December 2015 payment date and Fitch expects them to be fully replenished within the next two to three payment dates from available excess spread.

RATING SENSITIVITIES
In Fitch's opinion, borrower affordability is being supported by the low interest rate environment. This is evidenced by declining three month plus arrears balances across the transactions. However, low constant prepayment rates suggest that borrowers have been unable to refinance, leaving performance of the pools highly sensitive to future interest increases.

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 Acenden as at 30 November 2015
-- Transaction reporting provided by Acenden as at 10 December 2015
- Loan enforcement details provided by Acenden as at 10 December 2015

MODELS
The models below were used in the analysis. Click on the link for a description of the model.

ResiEMEA.

EMEA RMBS Surveillance Model.