OREANDA-NEWS. Fitch Ratings has affirmed Fastnet Securities 3 Limited as follows:

Class A1 (XS0336037469): affirmed at 'A+sf'; Outlook Stable
Class A2 (XS0336038194): affirmed at 'A+sf'; Outlook Stable

The transaction is a securitisation of owner-occupied (79.5%) and buy-to-let (20.5%) residential mortgages originated in Ireland by Permanent TSB plc (PTSB). It closed in 2007 and is the third standalone pass-through transaction by the issuer under this series to be rated by Fitch.

KEY RATING DRIVERS

Performance Within Expectations
As of end-January 2016, loans with more than three unpaid monthly payments stood at 12% of the outstanding portfolio balance, broadly in line with the average seen across other Fitch-rated Irish RMBS (14%). The cumulative balance of loans with properties taken into possession remains stable at 0.6% of the original portfolio balance, lower than the average for other Fitch-rated Irish RMBS of 2.3%.

However, the transaction is heavily reliant on the option to renegotiate the current mortgage terms for distressed borrowers. According to the updated information received by PTSB, the balance of mortgage loans that were subject to some form of restructuring represent 12.8% of the current portfolio balance. In line with Fitch's criteria, the agency applied a 10% increase to the foreclosure frequency of loans that were restructured more than two years ago. Where the mortgage restructure was agreed less than two years ago, the foreclosure frequency of the loan was incrementally increased by 10%-70% (depending on the type of restructure).

Market Peak Origination
This pool has a high percentage (87%) of peak-year lending (2005-2007) and an indexed weighted average (WA) current loan-to-value (CLTV) of 104%. Irish home prices fell nearly 51% from September 2007 to March 2013, leaving many borrowers in negative equity. However, over the past three years the property market recovery was close to 35%. As a result, the proportion of borrowers with an indexed WA CLTV above 100% has reduced to 65% of the outstanding portfolio from 77% as of end-March 2015.

The high property value discount has had an adverse effect on recoveries. Fitch analysed the data on properties taken into possession and sold by PTSB. Observed recoveries are consistent with an estimated average quick sale adjustment (QSA) equal to 42%, which is well above the criteria-specified QSA of 35%. Fitch has therefore increased its QSA assumptions to the observed levels when modelling the recovery rates of the asset portfolio. Despite the additional stress, the credit enhancement available to the rated notes (42.4%) was sufficient to offset these additional stresses.

Exposure to Account Bank
The transaction documentation does not include Fitch's minimum rating for direct support counterparties. This is not in line with the agency's Counterparty Criteria for Structured Finance and Covered Bonds and therefore the highest achievable rating for the class A1 and A2 notes is capped to the rating of the account bank provider (BNP Paribas, Dublin Branch; A+/Stable).

Stressed Excess Spread
There is no swap in place to hedge the mismatch between the interest paid on the portfolio and the fixed rates payable to the noteholders. Currently, 77.6% of the mortgages are linked to the European Central Bank Rate (ECBR), 20.5% to PTSB standard variable rate (SVR; 4.5%), with the remaining 1.9% fixed- rate mortgages gradually reverting to SVR. In line with its criteria, Fitch assumed a long-term SVR equal to Euribor plus 2.4% and a long term ECBR equal to Euribor minus 0.5%, stressing the transaction's excess spread.

Payment Interruption Risk Mitigated
Fitch tested the capacity of the structure to withstand the default of the servicer, PTSB. The risk of an interruption in the payments of senior fees and class A interests is mitigated by a EUR80m, non-amortising reserve fund and a warm back-up servicer agreement.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater than Fitch's base case expectations, which in turn may result in negative rating actions on the notes.

Given the credit links between Fastnet 3 and BNP Paribas, rating actions on the latter will be reflected in the class A notes' ratings.

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.

Prior to the transaction 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 transaction closing, Fitch conducted a review of a small targeted sample of PTSB'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 portfolio.

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 PTSB as at 21 January 2016
-Transaction reporting provided by PTSB as at 10 February 2016
-Loan enforcement details provided by PTSB referred to the period 2011-2016.