OREANDA-NEWS. Fitch Ratings has upgraded Class J of HYDRA III Funding Corporation's series 1 bonds and affirmed two others. The transaction is a securitisation of residential mortgage loan receivables, including those backed by investment properties, originated by multiple originators in Japan. The rating actions are listed below.

JPY2.48bn* Class S1 bonds affirmed at 'AAAsf'; Outlook Stable
JPY0.57bn* Class S2 bonds affirmed at 'AAAsf'; Outlook Stable
JPY0.2bn* Class J bonds upgraded to 'Asf' from 'A-sf'; Outlook Stable
*as of 27 April 2015

KEY RATING DRIVERS

The upgrade of the Class J bonds reflects growth in credit enhancement (CE) at both the underlying pool and transaction level. The delinquency and default performance of the four remaining underlying pools has been stable with no significant deterioration since the previous rating action in May 2014. Fitch expects this trend to continue.

The affirmations of the Class S1 and S2 bonds reflect Fitch's view that available CE levels are sufficient to support the current ratings.

RATING SENSITIVITIES

An unexpected material increase in delinquencies, defaults and loss severities from defaulted loans in the underlying pools may lead to negative rating actions. The CE levels for the 'AAAsf' rated bonds can support defaults at least three times higher than assumed in Fitch's 'AAAsf' stress scenario. The credit enhancement levels for the 'Asf' rated notes can support defaults at least four times higher than assumed in Fitch's 'Asf' stress scenario.

Given the potential risk of performance volatility as the underlying pools become smaller, further upgrade of the Class J bonds is not likely in the near future.

The originators of the remaining underlying assets are Sumitomo Mitsui Trust Loan & Finance Co., Ltd. (formerly Life Housing Loan, Co., Ltd.), SBI Mortgage Co., Ltd. (formerly GOODLOAN Co., Ltd.) and The Prudential Life Insurance Co., Ltd. (formerly Aoba Life Insurance Co., Ltd.).