OREANDA-NEWS. Fitch Ratings has upgraded German Mittelstand Equipment Finance SA, Compartment 2 class B and C notes and affirmed the class A notes as follows:

EUR106.3m class A notes: affirmed at 'AAAsf'; Stable Outlook

EUR13.0m class B notes: upgraded to 'AAAsf' from 'AAsf'; Stable Outlook

EUR18.3m class C notes: upgraded to 'AAsf' from 'Asf'; Positive Outlook

The transaction is a securitisation of receivables (without residual values) from lease contracts with German commercial businesses or self-employed professionals, originated by IKB Leasing GmbH, which is entirely owned by IKB Deutsche Industriebank AG.

KEY RATING DRIVERS

Performance in Line with Initial Expectations

Since closing in July 2014, the asset pool's performance has been in line with/slightly better than the expectations determined in Fitch's initial rating analysis. Cumulative losses are slightly lower than current expectations.

Increased Credit Enhancement From Amortisation

The transaction started amortising one year after closing with sequential allocation towards the notes. This has led to an increase in the available credit enhancement (CE) for the senior notes. CE currently stands at 38.7% for the class A notes (at closing in 2014 25.4%), 31.1% for the class B notes (20.4%), 20.5% for the class C notes (13.4%).

Stable Economic Outlook

The stable labour market in Germany with a moderate unemployment rate supports our expectation of a limited increase in defaults (cumulative defaults to date stand at 1.53%). Furthermore, the transaction has been reporting low delinquencies (30+ days at 0.43%) and strong recoveries. Overall, we consider the economic conditions in Germany to be supportive for commercial borrowers' ability to pay.

Protection Against Counterparty Failure

The liquidity reserve is amortising in line with the outstanding balance of the class A, B and C notes, subject to a floor of EUR1m. At the end of the reporting period in May 2016 the reserve stood at EUR1.9m. The potential commingling exposure is covered by a non-amortising commingling reserve of EUR2.9m. To reduce the risk of a sudden stoppage of the servicing function, a back-up servicer - BFS Finance GmbH (Arvato) - has been in place since closing.

Fitch has revised its lifetime default base case to 5.0% from 6.0% while maintaining its recovery base case of 65%.

RATING SENSITIVITIES

Expected impact upon the note rating of increased defaults and decreased recoveries (class A/B/C):

Current Ratings: 'AAAsf'/'AAAsf'/'AAsf'

Increase default base case by 10%; reduce recovery base case by 10%: 'AAAsf'/'AAAsf'/'AAsf'

Increase default base case by 25%; reduce recovery base case by 25%: 'AAAsf'/'AA+sf'/'A+sf'

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 the 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.

-Monthly investor report provided by IKB Leasing GmbH as of May 2016

-Loan level data from the European Data Warehouse (Edwin) as at 11 May 2016