OREANDA-NEWS. Fitch Ratings has assigned Permanent Master Issuer plc's (the master issuer) Permanent 2015-1 notes expected ratings, as follows:

Class A1 floating-rate note: 'AAA(EXP)sf', Stable Outlook
Class A2 floating-rate note: 'AAA(EXP)sf', Stable Outlook
Class A3 floating-rate note: 'AAA(EXP)sf', Stable Outlook
Class B floating-rate note: 'AA(EXP)sf', Stable Outlook
Class M floating-rate note: 'A(EXP)sf', Stable Outlook
Class C floating-rate note: 'BBB(EXP)sf', Stable Outlook

The assignment of the final ratings is subject to the receipt of final documents conforming to information already received.

The master trust property consists of mortgage loans originated in the UK by Bank of Scotland Plc (BOS, A+/Stable/F1) under the Halifax brand, and prior to the reorganisation of HBOS plc in September 2007, mortgage loans originated by Halifax plc (Halifax).

The trust property is expected to be approximately GBP17bn at closing. The expected ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement, the origination and underwriting procedures used by the originator, the servicing capabilities of BOS and the transaction's financial and legal structure.

KEY RATING DRIVERS
Reduced Credit Enhancement
The credit enhancement (CE) in the programme will reduce following the 2015-1 issuance. The CE available to the class A notes will reduce to 18.9%, compared with 36.1% as at the August 2015 investor report but will increase from 16.9% at the last issuance (April 2013). The reduction in CE from August 2015 is mainly due to a reduction of the Z-loan to GBP150m from GBP2,548m and a reduction in the reserve fund to GBP216m from GBP405m. Fitch has factored the updated CE into its analysis and concluded that the ratings of the existing notes issued under Permanent will be unaffected.

Reduced Minimum Seller Share
The minimum seller share (MSS) will reduce after issuance. The component of the MSS sized to cover deposit set-off risk is currently 2.0% based on total savings balances. Other components covered include flexible draw capacity and certain repurchase obligations. Lloyds provided data that showed the balance of deposits are above the GBP75,000 limit of the Financial Services Compensation Scheme. Fitch assessed the MSS and concluded that the reduction would not impact the ratings assigned to the notes issued under the programme.

Peak of Market Originations
Around 40% of the loans were originated during the peak of the market (2005-2007). Data provided shows a generally worse performance than the market average compared with comparable UK master trust transactions. To account for this, Fitch increased the base foreclosure frequencies by 5%.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels larger than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency along with a 30% decrease in the WA recovery rate would result in no changes to the ratings of the notes.

The assigned ratings are based on the assumptions in the existing criteria - Criteria Addendum: UK, dated 11 June 2015. If the proposed changes in the exposure draft report - Exposure Draft - Criteria Addendum: UK, dated 22 September 2015 were to be adopted the ratings assigned would be unchanged. As the transaction has the ability to change structure and credit enhancement in the future the notes do not benefit from any model-implied upgrades due to changes in the criteria.

More detailed model implied ratings sensitivity can be found in the presale report, which is available at www.fitchratings.com.

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

DATA ADEQUACY
BoS provided Fitch with a loan-by-loan data template. BoS was not able to provide data on borrower employment type and such loans are flagged as 'Unknown' in the pool tape. Further, data on adverse credit (CCJs/BO/IVA) was not captured by the system pre-July 2007 and hence around 30% of the pool are missing this data. Due to the lack of data for borrower employment type, Fitch has increased the foreclosure frequency of a certain proportion of loans.

It is Fitch's opinion that the data available for the rating analysis is of good quality.

To analyse CE, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that each class of notes could withstand loan losses at a level corresponding to the related stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.

During a visit to Lloyds' BoS offices in August 2015, Fitch conducted a file review on a small sample of loans. The agency found that the information in the files showed the underwriting practices had been appropriately followed and in general the quality of the records kept was adequate.

Fitch did not review the results of an agreed-upon procedures report. This was due to the fact that no new loans have been added to the programme.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by BoS as at 30 June 2015.
-Transaction reporting provided by BoS as at 31 August 2015.
-Loan enforcement details provided by BoS as at 31 August 2015.
-Loan performance data provided by BoS as at 31 August 2015.

MODELS
The models below were used in the analysis. Click on the link for a description of the model.

ResiEMEA
http://www.fitchratings.com/jsp/creditdesk/ToolsAndModels.faces?context=2&detail=135

EMEA Cash Flow Model
http://www.fitchratings.com/web_content/pages/sf/emea-cash-flow-model.htm

REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial presale report (see Permanent Master Issuer Plc - Appendix, dated 07 October 2015 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 26 March 2015 available on the Fitch website.