OREANDA-NEWS. Fitch Ratings has affirmed Edgbaston RMBS 2010-1 PLC, Hawthorn Finance Limited Series 2008-A and Tenterden Funding Plc. A full list of rating actions is at the end of this commentary.

Edgbaston is collateralised by mortgages originated by Bank of Scotland (A/Negative/F1) under the brand name Birmingham Midshires. Hawthorn comprises mortgages originated by West Bromwich Mortgage Company Limited, a wholly owned subsidiary of West Bromwich Building Society, whilst Tenterden comprises collateral originated by AIB Group (UK) Plc (BBB/Negative/F2).

Edgbaston and Hawthorn consist of 100% buy-to-let (BTL) loans, while the portion of BTL loans in Tenterden is limited to 22% of the current pool.

KEY RATING DRIVERS
Stable Arrears in Edgbaston and Hawthorn
Over the past year, the volume of loans in arrears in Edgbaston and Hawthorn has remained relatively stable. As of December 2014, three-month plus arrears in Edgbaston stood at 74bps of the outstanding mortgage balance, whilst Hawthorn reported three-month plus arrears at 43bps.

Decreasing Arrears in Tenterden
The volume of mortgages in arrears by more than three months in Tenterden has decreased to 1.7% from 2.9% in April 2014. The decrease was principally driven by two borrowers with bullet repayment terms which were extended to December 2014 as a result of forbearance agreements. Fitch believes that there is an increased probability of these loans reverting to arrears at the next payment date. As a result, in its analysis of the transaction, the agency did not take into account the decrease in late-stage arrears caused by the extended bullet repayment terms.

Receiver of Rent
Given the BTL nature of the pool in Hawthorn and Edgbaston, borrowers in arrears are managed via receiver of rent (ROR) policy, whereby the full rental stream is diverted towards clearing the arrears. At present, the portion of loans under the receiver of rent policy in Hawthorn stands at 88bps of the current portfolio. As performing loans under the ROR policies are excluded from published arrears figures, in its analysis Fitch has increased the default probability of these loans to account for the possibility of these borrowers falling back into arrears.

Fitch did not receive information on the loans under ROR policies in Edgbaston, therefore it has taken a more conservative stance in the analysis of the deal, by not giving any credit to the good historical performance seen to date.

Absence of Swap in Tenterden
To account for the absence of a hedge between Tenterden's LIBOR-linked notes and the BBR- and SVR-linked mortgages, which currently affects almost 100% of the underlying loans in the portfolio, in its analysis Fitch reduced the level of excess spread generated by the transaction.

The analysis showed that the credit enhancement of the rated tranches was sufficient to withstand the stresses, resulting in their affirmation.

RATING SENSITIVITIES
Increases in defaults and associated losses beyond Fitch's expectations, particularly as the portfolios continue to deleverage, could lead to strains on excess spread and subsequent reserve fund draws. This could have a negative impact on the credit support available to the rated notes resulting in potential negative rating actions.

The rating actions are as follows:

Edgbaston RMBS 2010-1 Plc
Class A2 (ISIN XS0533535331) affirmed at 'AAAsf'; Outlook Stable
Class A3 (ISIN XS0533535505) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0533535844) affirmed at 'AA-sf'; Outlook Stable

Hawthorn Finance Limited Series 2008-A
Class A (ISIN XS0376679949) affirmed at 'AAAsf'; Outlook Stable

Tenterden Funding Plc
Class A (ISIN XS0778328079) affirmed at 'AAAsf'; Outlook Stable