OREANDA-NEWS. Fitch Ratings has upgraded Sandown Gold 2012-1 Plc's class C notes and affirmed others as follows:

GBP424.1m Class A notes (XS0763436085): affirmed at 'AAAsf'; Outlook Stable
GBP100m Class B notes (XS0763436325): affirmed at 'AAAsf'; Outlook Stable
GBP130m Class C notes (XS0763436754): upgraded to 'AAsf' from 'A+sf'; Outlook Stable

Sandown Gold 2012-1 Plc. is a static UK cash flow SME CLO of loans granted to UK small- and medium-sized enterprises originated by Lloyds Bank plc. At the last review. there was a short-term risk of Lloyds becoming ineligible as the account bank due to its Negative Outlook and 'a-' Viability Rating. We have since upgraded Lloyds to 'A+'/Stable/'F1'/'a' from 'A'/Negative/'F1'/'a-'.

KEY RATING DRIVERS
The upgrade of the class C notes reflects the deleveraging of the portfolio and subsequent amortisation of the senior notes. The class A notes have received GBP159.2m of principal proceeds since last review and are currently 51.4% outstanding. The credit enhancement for all rated notes has therefore increased: for the class A to 61.5% from 50.5%, class B to 51.9% from 42.7% and class C to 39.6% from 32.5%.

In addition to the enhancement provided by subordination the rated notes are supported by the unrated class D and S notes, which total GBP416.2m. The class D notes are sized to cover set-off exposure in the underlying portfolio and Fitch has excluded their notional, GBP144.5m, from its analysis. There is also significant excess spread available, which is available to cover any losses incurred as a result of defaults.

The transaction has experienced an additional GBP1.7m of defaults, which were repurchased by the originator, in addition to GBP4.3m of impaired assets. While the repurchase of impaired assets is a benefit to the issuer, it also skews default and delinquency statistics. As a result, defaults experienced by the transaction since origination are only 0.61% of the initial portfolio balance, significantly below levels forecast, while current delinquencies in excess of 90 days have remained at zero. The repurchase rate in this review year has fallen, signalling better performance of the underlying loans.

While originator support has been a large benefit to the transaction to date, in its analysis, Fitch has not assumed that this support will continue. In the absence of originator support, the enhancement available to the rated notes is considered sufficient to withstand the losses associated with the agency's stress scenarios for the ratings.

Based on the internal ratings provided by Lloyds, the percentage of 'class A' loans, which are of the highest credit quality, has increased by 5.32% whilst the percentage of 'class E' and 'class F' loans has fallen by 1.74% and 1.71%, respectively, signally positive rating migration. In addition, despite the substantial deleveraging of the portfolio, obligor concentration remains low, with the majority of loans representing less than 0.02% of the outstanding balance with 82% of loans representing less than 0.06%.

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 performed 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 of these cases, there would be no rating implications for the class A and B notes while the class C notes would be subject to a downgrade of up to one notch.

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 an AUP report conducted on the asset portfolio information The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

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.

SOURCES OF INFORMATION
The information below was used in the analysis
- Investor reports from Lloyds Bank dated 13 October 2015
- Pool cut from Lloyds Bank dated 30 September 2015