OREANDA-NEWS. Fitch Ratings has affirmed Hermes XVIII as follows:

Class A2 (ISIN XS0826174772) affirmed at 'AAAsf'; Outlook Stable

Class A3 (ISIN XS0826176637) affirmed at 'AAAsf'; Outlook Stable

Class B (ISIN XS0826177361) affirmed at 'AAsf'; Outlook Stable

Class C (ISIN XS0826177528) affirmed at 'BBB+sf'; Outlook Stable

Class D (ISIN XS0826177791) affirmed at 'BBBsf'; Outlook Stable

The transaction is a securitisation of Dutch mortgages originated by SNS Bank (SNS; BBB+/Stable/F2) and its wholly owned subsidiary, RegioBank N. V.

KEY RATING DRIVERS

Stable Performance since Close

Late-stage arrears (loans that have been delinquent for over three months), at 0.21% of current balance, are roughly half the level of the Fitch Netherlands All Deals index. A similar trend is observed in overall arrears.

The lender adjustment applied at closing in 2012 (due to lack of performance data for loans of the vintage in this pool) has been removed as Fitch now has more than three years of observable data. An adjustment is applied through the performance adjustment factor (PAF), which compares Fitch's 'Bsf' lifetime default probability (on a back-loaded basis) against the defaults seen to date.

Senior Notes Partially Hedged

Only the floating-rate class A2 notes are hedged in this transaction. Fitch has made assumptions regarding the rate at which loans switch from fixed to floating (and vice versa) under different interest rate scenarios, given their reset dates.

The agency also made conservative assumptions regarding the margin or coupon the loans would reset to. It is worth noting that SNS, along with the issuer, is permitted to make substitutions to maintain a minimum weighted average interest rate of the loans of 3.75% on a best effort basis. There were EUR26m substitutions made in March 2016, which represents 2.7% of the original portfolio.

In Fitch's view the transaction is exposed to the risk of a possible shift in borrower profile due to the ongoing substitution of loans. For this reason, the agency viewed the model-implied PAF of 2.0 as appropriate for its analysis.

Benefit to NHG Loans

Roughly 70% of the loans in the portfolio are backed by a guarantee from the NHG. The agency has applied a 25% decrease in base default probabilities for this portion of the pool. This is based on analysis of cumulative defaults across SNS's loan book.

However, based on the limited foreclosures reported to date in this transaction (36), non-NHG loans have a lower rate of default. Fitch will continue to monitor the default performance of NHG loans to assess if the decrease is warranted.

Set-off Risk from Insurance Loans

Fitch estimates that 22.3% of the loans are backed by a capital insurance product. These loans are exposed to the risk that upon insolvency of the policy provider, borrowers may seek to set-off against their mortgages the claim over the insurance provider resulting from a loss of premium or damages. This risk has been accounted for in the analysis.

It should be noted that the proportion of these loans has increased significantly since closing (when it was estimated to be 10.3%). This is likely due to substitutions by the issuer to maintain a minimum weighted average interest rate on the loans. Further increases in such loans may lead to the agency modelling greater set-off risk.

Income Verification

For a negligible portion of the portfolio, income verification loans were labelled as 'other'. The agency has assumed that all income is fully verified, as was the case at transaction close.

RATING SENSITIVITIES

Further increases in the proportion of insurance type loans would lead to Fitch factoring in higher set-off risk. This may lead to negative rating actions on the notes.

Adverse economic conditions in excess of those specified in Fitch's criteria may lead to underperformance of the borrowers. This in turn may lead to a compression of excess spread available to the transaction. Consequently, with lower credit enhancement, negative rating actions may follow.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch 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 affected the rating 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 and concluded that there were no findings that affected the rating analysis.

Prior to the transaction closing, Fitch conducted a review of a small targeted sample of SNS'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 the European Data Warehouse as at 31 May 2016

-Transaction reporting provided by Intertrust Administrative Services B. V. as at 20 June 2016 and 30 June 2016

-Discussions/updates from servicer as at 31 August 2016