OREANDA-NEWS. Fitch Ratings has affirmed HYDRA III 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.

JPY1.95bn* Class S1 bonds affirmed at 'AAAsf'; Outlook Stable
JPY445m* Class S2 bonds affirmed at 'AAAsf'; Outlook Stable
JPY197m* Class J bonds affirmed at 'Asf'; Outlook Stable
*as of 13 April 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 April 2015. The available CE levels have improved alongside significant amortisation of the bonds. However, this may be offset by potential risk of performance volatility as the underlying pools get smaller.

Fitch expects the Class J bonds to experience a temporary deferral of interest in April 2016. This is due to the timing of annual fee payment in the transaction's structure rather than deterioration of the pool performance. 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 3.6 times higher than assumed in Fitch's 'AAAsf' stress scenario. The credit enhancement levels for the 'Asf' rated notes can support losses 5.5 times higher than assumed in Fitch's 'Asf' stress scenario.

The originators of the remaining underlying assets are Sumitomo Mitsui Trust Loan & Finance Co., Ltd. (formerly Life Housing Loan, Co., Ltd.), ARUHI Corporation (formerly SBI Mortgage Co., Ltd.) and The Prudential Life Insurance Co., Ltd. (formerly Aoba Life Insurance 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.