OREANDA-NEWS. Fitch Ratings has affirmed HYDRA II Funding Corporation's series 1 bonds. The transaction is a securitisation of residential mortgage loan receivables, including those backed by investment properties, originated by multiple originators in Japan. The rating actions are listed below.

JPY5.08bn* Class S1 bonds affirmed at 'AAAsf'; Outlook Stable
JPY1.2bn* Class S3 bonds affirmed at 'AAAsf'; Outlook Stable
JPY1.32bn* Class J bonds affirmed at 'BBBsf'; Outlook Stable
*as of 2 March 2016

KEY RATING DRIVERS
The affirmations reflect Fitch's view that available credit enhancement (CE) levels are sufficient to support the current ratings. The delinquency and default performance of each underlying pool has been stable with no significant deterioration since the previous rating action in March 2015.

The available CE levels in Hydra II Trust have improved alongside amortisation of the bonds. However, this may be offset by potential risk of performance volatility as the underlying pools get smaller. Furthermore, the Class J bonds experienced a deferral of interest in May 2012; this was due to the transaction's waterfall structure, rather than a shortage of funds. This has been taken into account in the affirmation of the Class J bonds.

In addition to its published rating criteria listed below, Fitch's analysis also incorporated Japan-specific assumptions in applying the APAC Residential Mortgage Criteria. These included frequency of foreclosure assumptions based on loan-to-value and debt-to-income ratios as well as loss severities for each underlying mortgage loan.

RATING SENSITIVITIES
An unexpected material increase in delinquencies, defaults and loss severities from defaulted loans in the underlying pools may lead to negative rating actions. The credit enhancement levels for the 'AAAsf' rated notes can support losses 1.7 times higher than assumed in Fitch's 'AAAsf' stress scenario. The credit enhancement levels for the 'BBBsf' rated notes can support losses 1.8 times higher than assumed in Fitch's 'BBBsf' stress scenario.

The originators include Sumitomo Mitsui Trust Loan & Finance Co., Ltd. (formerly Life Housing Loan Co., Ltd.) and SBI Mortgage Co., Ltd. (formerly GOODLOAN Co., Ltd.).

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 underlying 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 underlying pool information or conducted a review of loan origination files as part of its ongoing monitoring.