OREANDA-NEWS. Fitch Ratings has assigned Molineux RMBS 2016-1 plc notes the following final ratings:

GBP600m Class A1: 'AAAsf'; Stable Outlook

GBP1,209.6m Class A2: 'AAAsf'; Stable Outlook

GBP127.6m Class B: 'AAsf'; Stable Outlook

GBP87m Class C: 'Asf'; Stable Outlook

GBP75.4m Class D: 'BBB-sf'; Stable Outlook

GBP220.4m Class Z: not rated

This transaction is a securitisation of buy-to-let (BTL) and let-to-buy (LTB) mortgages that were originated by Bank of Scotland plc (BoS), acting through its branch Birmingham Midshires (BM) in the UK. A five-year revolving pool of GBP2,320m is financed through proceeds from the notes. Proceeds from a subordinated loan are being applied towards funding a reserve fund, which offers liquidity support and credit enhancement.

KEY RATING DRIVERS
Long Revolving Period
The transaction features a five-year revolving period, which exposes investors to an increased risk of a deterioration of the economic environment. Furthermore, the pool could migrate towards assets with higher risk attributes, although this is mitigated by the replenishment criteria within the transaction documentation. Fitch has assumed changes to the portfolio characteristics, in line with the transaction documentation, resulting in an increase of default probabilities.

Prepayments Drive Replenishment Capacity
About 88% of loans in the initial transaction portfolio are interest-only; scheduled repayment of principal from the pool will consequently be limited during the revolving period. Historical prepayments on the originator's BTL loan book are high. Fitch has therefore assumed that a substantial proportion of the pool will prepay during the replenishment phase, allowing significant pool migration.

Capped Geographical Concentrations
About 56% of loans in the initial pool are secured by properties located in Greater London and South East. Fitch has increased the default probability for these loans to account for the geographical concentration in excess of the population share in these regions. We view the replenishment limits on geographical concentrations as a partially offsetting feature.

Reliance on BoS as Counterparty
BoS acts as servicer, issuer account bank and interest-rate swap provider. Consequently, the transaction is exposed to BoS' operational capabilities and credit quality. A default of BoS could have a significantly negative effect on the transaction's performance. However, we consider remedial actions as adequate to address the risks; rating-based provisions are in place to ensure a replacement of BoS as counterparty if its credit quality deteriorates.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating action on the notes. Fitch's analysis revealed that a 30% increase in the weighted average (WA) foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'A+sf' from 'AAAsf'.

More detailed model implied ratings sensitivity can be found in the new issue report, which is available at www.fitchratings.com.

DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
BoS provided Fitch with a loan-by-loan data template, cumulative loan book losses and 90+ static and dynamic arrears data. Fitch considers that the data available for the analysis is of sufficient quality and factors into its analysis that the observed performance is comparable to peers. The collateral review of the mortgage portfolio also involves reviewing loan-by-loan loss severity information on the originator's sold repossessions, during which the agency determines the originator's experienced loss severity rate and quick-sale adjustment (QSA). The QSA, calculated using the repossession data provided by the originator, was about 37.5% for BoS' repossessed and sold properties. As the QSA figures are higher than Fitch's criteria assumptions for BTL, Fitch has increased its QSA assumptions to 37.5%.

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.

Fitch completed a review of the origination policies and practices of BoS as part of the rating process. This included a file review of a sample of the provisional mortgage portfolio. These cases were chosen based on specific borrower and loan characteristics and the loan records were checked against the documented procedures at the time the mortgage application was considered. Fitch is satisfied that the loans were underwritten as per BoS's lending criteria.

Overall, and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

To analyse the credit enhancement levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses, including prepayment speeds and interest rate scenarios.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by BoS as at 12 February 2016
- Loan enforcement details provided by BoS as at 22 January 2016
- Loan performance data provided by BoS as at 22 January 2016