OREANDA-NEWS. Fitch Ratings has affirmed Penates Funding N.V./S.A., Compartment Penates- 1 (Penates 1) and Compartment Penates-4 (Penates 4). The Outlook on Penates 4's class B notes has been revised to Negative from Stable.

The transactions are collateralised by residential loans originated and serviced by Belfius Bank (A-/Negative/F1).

KEY RATING DRIVERS
Robust Performance
The affirmations reflect the robust performance of the underlying assets in both transactions, which is in line with Fitch's initial expectations. As of the most recent interest payment dates, one-month plus arrears stood at 0.13% and 0.15% of the current pool balance for Penates 1 and 4, respectively.

Full Provisioning of Defaulted Loans
The transactions' structure allows for the full provisioning of defaulted loans (defined as loans in arrears by more than 3 months). As of the most recent interest payment dates, the cumulative gross defaults stood at 0.50% and 0.64% of the initial pool balance, of which until now, 67.7% and 38.2% has been recovered in Penates 1 and 4, respectively. To date, the guaranteed excess margin of 35bps in Penates 1 and 45bps in Penates 4 of the respective outstanding collateral balance, together with period recoveries has enabled the issuer to comfortably clear defaults. As a result, the reserve funds remain fully funded in both deals. Combined with the sequential amortisation of the notes in all transactions, this will lead to a further build-up in credit enhancement.

Rating Cap
The issuers in both transactions amended the documentation following Fitch's downgrade of Belfius Bank to 'A-'/'Stable'/'F1' in January 2012. The account bank and swap collateralisation triggers in both transactions, along with the risk mitigation deposit in Penates 4, had their rating thresholds lowered to 'BBB+'/'F2'. These were increased to 'A-'/'F2' in Penates 4 in December 2013.

As a result, in accordance with Fitch's counterparty risk criteria and view (see: Fitch: Retained ECB Structured Finance at Risk of Greater Rating Volatility dated 5 January 2012 at www.fitchratings.com), the ratings of Penates 1 and Penates 4 are capped at 'A+sf'.

Moreover, the agency notes that Penates 4's junior swap agreement does not include any triggers or replacement language. Hence, the class B notes in Penates 4 are credit-capped at Belfius's rating, at 'A-sf'. The Outlook on class B has been revised to Negative from Stable to mirror Belfius's Outlook.

RATING SENSITIVITIES
Deterioration in asset performance may result from economic factors, in particular the increasing effect of unemployment. A corresponding increase in new defaults and associated pressure on excess spread levels and reserve fund could result in negative rating action.

The rating actions are as follows:
Penates Funding N.V.-S.A. Compartment Penates- 1
Class A (BE0002373455) affirmed at 'A+sf'; Outlook Stable
Class B (BE0002374461) affirmed at 'A+sf'; Outlook Stable
Class C (BE0002375476) affirmed at 'A+sf'; Outlook Stable
Class D (BE0002376482) affirmed at 'BBBsf'; Outlook Stable

Penates Funding N.V.-S.A. Compartment Penates- 4
Class A (BE0002408806) affirmed at 'A+sf'; Outlook Stable
Class B (BE6228345722) affirmed at 'A-sf'; Outlook revised to Negative from Stable.