OREANDA-NEWS. Fitch Ratings has affirmed Auburn Securities 4 Plc, Auburn Securities 6 Plc and Auburn Securities 7 Plc. The transactions comprise buy-to-let loans originated by Capital Home Loans (CHL). A list of rating actions is provided at the end of the commentary.

Healthy Asset Performance
All three transactions have shown improving performance, with three months plus (3M+) arrears decreasing to 0.5%, 0.6% and 0.6% of the current portfolio balance as of end-February 2015 from their peak of 2.3%, 3.7% and 2.3% in 2009, respectively. Given the current low pipeline of late-stage arrears in these transactions, Fitch expects possession activities and associated losses to remain minimal in the coming year.

Auburn 6 and 7 have incurred higher sold repossessions and larger losses on properties sold than Auburn 4, as a result of underlying loans being originated predominantly at the peak of the market. To date weighted average loss severities are 34% and 36%, respectively, for Auburn 6 and 7, compared with 16% in Auburn 4. Consequently, in its analysis Fitch has applied additional stresses to its recovery rate assumptions in all three transactions.

Limited Excess Spread
Annualised gross excess spread in Auburn 4, 6 and 7 currently ranges between 10bps and 90bps of the outstanding pool balances. The fairly low levels of excess spread offer limited protection against period losses and led to marginal reserve fund draws in the past year. Given the limited volume of properties currently in possession (0.1%, 0.3% and 0.4% of current pool balances), Fitch expects future losses and reserve fund draws to remain minimal. For this reason, Fitch has affirmed the ratings of all three transactions with Stable Outlooks.

No Impact of Un-hedged Basis Risk
The Auburn series comprises nearly 100% floating-rate loans (bank base rate (BBR)-linked loans) whereas the notes pay a margin over Libor. The basis risk in each transaction is hedged by a variable swap where CHL serves as swap counterparty and Permanent TSB acts as swap guarantor. Given that both entities are unrated, the transactions are considered un-hedged in Fitch's analysis and we have applied a haircut to the portfolio margins. The resulting cash flow analysis concluded that the rated notes were able to withstand the reduction in coupons under Fitch's stressed scenarios.

RATING SENSITIVITIES

Significant increases in defaults and associated losses beyond Fitch's expectations, particularly as the portfolios continue to deleverage, could lead to further strains on excess spread and exacerbate the pace of reserve fund draws. This could have a negative impact on the credit support available to the rated notes resulting in negative rating action.

The rating actions are as follows:

Auburn Securities 4 plc:
Class A2 (ISIN XS0202810064): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS0202810734): affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0202811039): affirmed at 'AAAsf'; Outlook Stable
Class C (ISIN XS0202811625): affirmed at 'AAsf'; Outlook Stable
Class D (ISIN XS0202812276): affirmed at 'A-sf'; Outlook Stable
Class E (ISIN XS0202812516): affirmed at 'BB+sf'; Outlook Stable

Auburn Securities 6 plc:
Class A (ISIN XS0329737448): affirmed at 'AAAsf'; Outlook Stable

Auburn Securities 7 plc:
Class A (ISIN XS0379615742): affirmed at 'AAAsf'; Outlook Stable