OREANDA-NEWS. Fitch Ratings has affirmed Thrones 2013-1 Plc's class A notes (ISIN XS0957024226) at 'AAAsf'. The Outlook is Stable.

The UK non-conforming RMBS transaction comprises loans originated by Heritable Bank (subsidiary of the Icelandic bank Landsbanki) between 2003 and 2008. Landsbanki went into administration in 2008. In May 2013 the pool of loans was sold to Cherub Funding Limited and in July 2013 it was securitised.

KEY RATING DRIVERS
Stable Credit Enhancement
Subordination provided by the junior certificates (27.5% of the initial pool balance) issued at closing mean that the class A notes have sufficient credit enhancement to support the rating. Due to the sequential amortisation of the notes, Fitch expects a further build-up in credit support, which is reflected in the affirmation and Stable Outlook.

Stable Asset Performance
The transaction's asset performance has been stable compared with other UK non-conforming deals. As of April 2015, three-months plus arrears (excluding defaults) as a percentage of the current pool balance stood at 1.7%. Total arrears were stable at 8.4%. The transaction has not yet reported any loans with properties taken into possession.

Reserve Fund at Target
The reserve fund, remains at its target (3% of the initial pool). After the portfolio balance reaches 50% of the initial portfolio balance, the reserve fund can amortise to the lower of 3% of the initial portfolio balance and 6% of the outstanding portfolio balance. The general reserve can be used to cover for shortfalls in senior fees, note interest and to cure the class A principal deficiency ledger.

Given the expectation of limited loans being taken into possession in the coming periods, Fitch does not expect the reserve fund to be used in the near term. Fitch does not expect the reserve fund to start amortising in the next 18 months given current prepayment rates.

Unhedged Structure
Most borrowers in the portfolio pay standard variable rate (SVR), while the notes pay a margin over three-month GBP Libor. The transaction structure has been left unhedged, so a compression in the SVR-Libor spread in a rising interest rate environment, would negatively impact excess spread. This risk is increased by the step-up interest rate feature (with a step-up date in July 2018).

In its analysis of the portfolio, Fitch accounted for this risk by reducing the credit given to excess spread. Despite the additional stresses applied, the credit enhancement available to the class A notes was sufficient to withstand the respective stresses, thus leading to their affirmation.

Payment Interruption Risk
The reserve fund provides sufficient liquidity to cover at least three months' worth of payments due on the senior fees and interest on the senior notes in case of default of the servicer or the collection account bank.

In addition to the reserve fund, the issuer has appointed a back-up servicer (Homeloan Management Limited, RPS2+) in the event that Pepper UK Limited is unable to fulfil its obligations.

The structure allows for diversion of principal to pay senior fees and interest for the class A notes, upon the full utilisation of the reserve fund.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on sold properties leading to losses in excess of Fitch's standard assumptions, could result in rating action on the notes.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action

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.

Prior to the transaction closing Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data related to the valuation report information. These findings were considered in this analysis by assuming the income of the relevant borrower to be zero, as set out more fully in the new issue report.

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