OREANDA-NEWS. Fitch Ratings has taken multiple ratings action on Exeter Blue Limited as follows:

EUR31.9m Class A notes: affirmed at 'Asf'; Outlook revised to Negative from Stable
EUR31.9m Class B notes: upgraded to 'Asf' from 'BBBsf'; Outlook Negative
EUR26.6m Class C notes: upgraded to 'BBBsf' from 'BBsf'; Outlook Stable
EUR10.7m Class D notes: upgraded to 'BBsf' from 'Bsf'; Outlook Stable
EUR8.5m Class E notes: upgraded to 'Bsf' from 'CCCsf'; Outlook Stable
EUR16.5m subordinated note: unrated

Exeter Blue Limited is now a static UK synthetic balance sheet securitisation of project finance and infrastructure loans primarily located in western Europe. The senior exposure (currently EUR261.6m) is retained by the originator and must be repaid in full before any of the rated notes are repaid. The proceeds from the issue of the notes are held in a deposit account with Lloyds Bank plc (A/Negative/F1).

KEY RATING DRIVERS
The upgrade of classes B, C, D and E reflect the transaction's strong performance over the last 12 months. In this period, the underlying reference portfolio has amortised to EUR388m from EUR597m, resulting in a significant increase in the credit enhancement available to the rated notes. Credit enhancement for the class B, C, D and E notes has grown to 16%, 9.2%, 6.4% and 4.3%, respectively, from 10.4%, 6%, 4.2% and 2.8%.

In calculating enhancement levels, Fitch has assumed that the excess cash in the deposit account over the reference portfolio will be used to repay the senior exposure at the next payment date, per transaction documents.

Fitch has determined that excessive counterparty risk is now present in this transaction in regards to Lloyds Bank which holds cash in a deposit account which will be used to repay the notes as the reference portfolio amortises. In the event that the Lloyds were to jump to default, Exeter Blue would become an unsecured creditor of Lloyds and would likely default on contractual payments due to the noteholders. As a result of this excessive counterparty risk, the rated notes are now subject to a cap equal to Lloyds Bank rating, currently 'A' with Negative Outlook, leading to today's Outlook revision.

As a result of the reference portfolio amortisation, exposure to Cyprus has been removed from the portfolio (2.2% when last reviewed). Cyprus has a Country Ceiling of 'B', and as such in all stress scenarios above 'BB+', a 100% loss would have been assumed on any asset in this country. The amortisation of Cypriot assets is therefore a significant benefit to the transaction in stress scenarios above 'BB+' (see Fitch's Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds (February 2015) for further information).

Since inception, there have been two assets in the reference portfolio which have been subject to a credit event. The credit events were first reported in April 2012 and August 2014 and had a notional value at the time of the credit event of EUR10.8m and EUR25m respectively. Following a loss determination procedure, the losses applied to the transaction were EUR4.6m and EUR2.5m, indicating recovery rates of 58% and 90% respectively. These losses were written off the subordinated notes and subsequently topped up through an excess spread mechanism present in the transaction. As such the subordinated notes remain fully funded.

As a result of the amortisation, obligor concentration has increased as the portfolio now consists of 25 obligors compared with 33 previously. The top obligor now represents 9.8% of the outstanding portfolio compared with 8.5% a year ago. Additionally the top five obligors have grown to 37.4% from 31.9% of the portfolio. When conducting its asset analysis, Fitch attributed a 75% recovery multiplier and a 150% correlation multiplier to the largest five obligors.

The Fitch estimated recovery rates on the underlying portfolio range between 65% and 95%. The analysis is based on asset-specific recovery assumptions in tiers of 85% (base case) to 60% (AAA stress case). Additionally, the correlation assumptions for the analysis were based on a relative ranking of project finance correlations, which are lower than for corporate debt obligations due to structural features. Correlation for projects within the UK, but from different sectors is considered to be 7%, whereas the correlation for two projects in the UK and the same sector, such as healthcare can be up to 13%.

RATING SENSITIVITIES
As part of its analysis, Fitch considers the sensitivity of the notes' ratings to additional stresses on default and recovery rate assumptions undertaken as part of the rating analysis.

The agency tested two additional sensitivities, one by increasing the assumed default rates by 25% and the other by decreasing the assumed recovery rates by 25%. In both cases, there would be a downgrade of up to two notches on the rated notes.

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 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 ongoing monitoring.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information.

Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator'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.