OREANDA-NEWS. Fitch Ratings has upgraded Precise Mortgage funding No.1 Plc's (PMF 1) class B and C notes and Precise Mortgage Funding 2015-1 Plc (PMF 15-1) and Precise Mortgage Funding 2015-2B Plc's (PMF 15-2B) class B notes. Fitch affirmed the remaining tranches. A full list of rating actions is available at www.fitchratings.com or by clicking the link above.

The Precise series is a securitisation of a mixed pool of owner occupied and buy-to-let (BTL) residential mortgages originated by Charter Court Financial Services (CCFS), trading as Precise Mortgages (Precise or the originator) in the UK (excluding Northern Ireland), apart from PMF 15-2B, which is entirely backed by BTL loans.

KEY RATING DRIVERS
Prime Underwriting, Limited Credit History
A significant portion of the securitised assets, spanning from 72% (PMF 1) to 44% (PMF 15-3R) of the current pool balance, comprises owner-occupied and Tier 3 BTL loans for which the underwriting criteria permits some prior adverse credit history. The agency performed a review of credit and origination policies and historical arrears performance data ahead of the transactions' closing. Fitch believes these mortgages to be of a better credit quality than the non-conforming universe on which it bases its assumptions. Consequently, Fitch used the non-conforming matrix to calculate the base foreclosure frequency and reduced it by 10%. The same considerations apply for PMF 15-2B, as 14% of the portfolio is made of Tier 3 BTL mortgages.

The remaining portions of the securitised portfolios are made of Tier 1 and Tier 2 BTL loans, which the agency treated as prime products. Fitch increased the base default probability by 10% on these mortgage products due to the short history of data available.

The near-prime nature of the asset portfolios is reflected in the stable performance so far. As of December 2015, the balance of mortgages in arrear as a percentage of the outstanding portfolios was lower than 1% across the series, while no mortgages have been foreclosed. Fitch expects the transactions' performance to remain stable, as reflected in the removal from Rating Watch Positive and the Stable and Positive Outlooks on the notes.

Payment Interruption Risk Mitigated
Fitch tested the structures' ability to cope with the loss of the servicer. The agency considers the cash provided by the reserve funds' liquidity sub-ledgers to be sufficient to cover the risk of an interruption in payments of senior fees and interest on the notes rated above 'Asf', under stressed Libor assumptions, for more than two interest payment dates.

Interest Rate Risk
Between 62.7% (PMF 14-2) and 4.4% (PMF 1) of the portfolios are fixed rate loans, which revert to the Libor rate within two years of their origination. In PMF 15-3R, the interest rate risk will remain unhedged. In the rest of the deals, the issuers entered into interest rate swaps on which they pay a fixed rate on a notional equal to the aggregate balance of the fixed rate mortgages and receive the three-month GBP Libor payable on the notes. In PMF 1, PMF 14-1 and PMF 14-2 the swap provider is Credit Suisse (A/F1), while in PMF 15-1 and PMF 15-2B the counterparty is Natixis (A/F1), both eligible institutions according to Fitch's criteria.

Sufficient Credit Enhancement
As of December 2015, the credit enhancement available to the rated notes spanned from 28.4% (class A notes, PMF 1) to 1.0% (class D notes, PMF 15-2B). Fitch deems the current credit enhancement to be sufficient to upgrade PMF 1's class B and C notes and PMF 15-1 and PMF 15-2B's class B notes and to affirm the rest of the structures.

Fitch notes that PMF 1's portfolio was subject to extremely high prepayment rates in 2H15 (the annualised quarterly CPR was 35.8% in August and 57.1% in November) as a consequence of borrowers rolling off the initial teaser rate and refinancing out of the portfolio. This accelerated the amortisation of the class A notes, with the effect of increasing credit enhancement available to the structure. The agency's expectation for the forthcoming months is for high prepayment rates for PMF 1 as well as PMF 2014-1 and PMF 2014-2, due to the same reason. This is reflected in the revision of the Outlook to Positive from Stable on the class B notes of the 2014 vintage deals.

RATING SENSITIVITIES
An increase in market interest rates will put pressure on borrowers' affordability, and potentially cause deterioration of asset performance. Should this result in defaults and losses on properties sold in excess of Fitch's expectations, the agency may take negative rating action on the notes.

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. 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. Prior to the transactions closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Prior to the transactions' closing, Fitch conducted a review of a small targeted sample of Precise'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 portfolios. 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 Precise as at December 2015
- Transactions reporting provided by Precise as at December 2015

Relevant for Precise 2015-1: in accordance with Fitch's policies the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.

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

 

REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see Precise Mortgage Funding No.1 plc - Appendix, dated 27 November 2013; Precise Mortgage Funding 2014-1 plc - Appendix, dated 17 July 2014; Precise Mortgage Funding 2014-2 plc - Appendix, dated 21 November 2014; Precise Mortgage Funding 2015-1 plc - Appendix, dated 25 March 2015; Precise Mortgage Funding 2015-2B plc - Appendix, dated 27 June 2015 and Precise Mortgage Funding 2015-3R plc - Appendix, dated 27 November 2015 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.