OREANDA-NEWS. Fitch Ratings has upgraded one tranche from Vela Mortgages S. r.l. - Series 1 (VM1) and one from Vela Mortgages S. r.l. - Series 2 (VM2) and affirmed all others, as follows:

VM1:

Class A (ISIN IT0004364185): affirmed at 'AA+sf', Outlook Stable

Class B (ISIN IT0004364193): affirmed at 'AAsf'; Outlook Stable

Class C (ISIN IT0004364201): upgraded to 'BBB+' from 'BBB?'; Outlook Stable

VM2:

Class A (ISIN IT0004550429): affirmed at 'AA+sf'; Outlook Stable

Class B (ISIN IT0004550593): upgraded to 'AA+sf' from 'AAsf'; Outlook Stable

Class C (ISIN IT0004550452): affirmed at 'Asf', Outlook Stable

VM1 and VM2 are two Italian RMBS transactions originated by Banca Nazionale del Lavoro S. p.A., a subsidiary of BNP Paribas.

KEY RATING DRIVERS

Adequate Credit Support

Credit enhancement (CE) has increased over the past 12 months as a result of portfolio redemptions. The annualised principal payment rate has averaged about 24% for VM1 and 34% for VM2. CE for the most senior tranches in the Vela series ranges from 24.6% (VM1) and 33.4% (VM2).

Stable Performance

The asset performance in the Vela series has remained broadly stable over the past 12 months. Late-stage arrears are 1.6% for both transactions, almost unchanged from 1.2% (VM2) and 1.5% (VM1) a year ago. The volume of defaults (loans with six unpaid instalments) is reported at 4.7% for VM2 from 4.6% a year ago and 6.7% for VM1 from 6.3%.

Although the cash reserve of VM1 is not at its target amount (73% of its target level), its balance has remained broadly stable over the past year and accounts for about 6% of the notes balance.

Fitch believes that asset performance in the Vela series will remain stable. This, coupled with increasing credit support, contributed to the upgrades of VM1's class C notes and VM2's class B notes.

Capped Recovery Rate

Fitch has capped the recovery rate at 100% of the defaulted balance for both transactions despite the relatively low average loan to value ratio of the remaining portfolios to account for the lengthy recovery timing in Italy. The stress had no impact on the ratings.

Commingling Risk Mitigated

According to the transactions' legal documentation (amended for VM2 in 2013, see Fitch's press release dated 19 August 2014), should the servicer be downgraded below 'F1' (VM1) or 'A-'/'F1' (VM2), the bank will have to fund a commingling reserve in an amount to be determined according to the legal documents. As a result, Fitch has not sized for commingling risk in its analysis.

Account Bank Constraining VM2's Class C Rating

The rating of VM2's class C notes is capped at 'Asf', the minimum rating of the issuer's account bank according to the transaction legal documentation, because the only source of CE for this tranche is the cash reserve, which is held at the account bank.

RATING SENSITIVITIES

Changes to Italy's Long-Term Issuer Default Rating (BBB+/Stable) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes on the notes rated at this rating level.

Deterioration in asset performance beyond Fitch's standard assumptions would also trigger negative rating actions.

An abrupt increase in reference interest rates beyond Fitch's stresses would jeopardise the affordability of borrowers with fixed instalment/variable maturity loans that feature embedded bullet risk at the maximum extended maturity. This could also result in negative rating actions.

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. 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 monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

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 the European Data Warehouse at beginning of April 2016.

-Transaction reporting provided by Banca Nazionale del Lavoro (BNL) at beginning of April 2016.