OREANDA-NEWS. Fitch Ratings has affirmed Laurelin II B.V.'s notes, as follows:

Class A-1E: affirmed at 'AAAsf'; Outlook Stable
Class A-1R: affirmed at 'AAAsf'; Outlook Stable
Class A-1S affirmed at 'AAAsf'; Outlook Stable
Class A-2: affirmed at 'AAAsf'; Outlook Stable
Class B-1: affirmed at 'AAsf'; Outlook Stable
Class B-2: affirmed at 'AAsf'; Outlook Stable
Class C: affirmed at 'Asf'; Outlook Stable
Class D-1: affirmed at 'BBBsf'; Outlook revised to Stable from Negative
Class D-2: affirmed at 'BBBsf'; Outlook revised to Stable from Negative
Class E: affirmed at 'BBsf'; Outlook revised to Stable from Negative

Laurelin II B.V. is a securitisation of mainly senior secured, senior unsecured, second-lien and mezzanine loans (including revolvers) extended to mostly European obligors. At closing, a total note issuance of EUR450m was used to invest in a target portfolio of EUR438m. The portfolio is actively managed by GoldenTree Asset Management L.P.

KEY RATING DRIVERS
The affirmation reflects adequate credit enhancement for the notes. The credit quality of the performing portfolio has improved over the last year, with the reported weighted average Fitch rating factor falling to 27.0 from 28.3 in January 2015.

Credit enhancement is continuing to rise as the transaction deleverages. Fitch has revised the Outlooks on the class D-1, D-2 and E notes to Stable to reflect more robust protection against performance volatility and FX losses afforded by the credit enhancement increase. Since January 2015, EUR82.2m and GBP27.9m has been used to redeem the rated notes. However, this has led to an increase in the obligor concentration. The largest obligor exposure is now reported at 5.0% of the portfolio, up from 3.4% 12 months ago.

The manager is allowed to reinvest unscheduled principal proceeds and sale proceeds from credit-improved and credit-impaired assets even after the end of the reinvestment period, subject to several conditions. Nevertheless, unlike other comparable transactions, the manager engaged in limited trading in 2015, purchasing only one asset.

The transaction features the multi-currency class A-1R variable funding notes to hedge sterling exposure. Following the end of the reinvestment period the transaction can no longer draw funds from the A-1R notes to hedge non-euro assets. The main hedging strategy is to match senior note redemptions by currency so that sterling principal proceeds are used to redeem sterling-denominated senior notes, while euro principal proceeds are used to redeem euro-denominated senior notes. However, a skew of defaults or prepayments to assets denominated in a single currency can create a currency mismatch, introducing additional performance volatility for the transaction. Fitch incorporated the impact of potential currency mismatch into its cash flow analysis.

RATING SENSITIVITIES
A 25% increase in the obligor default probability would lead to a downgrade of up to one notch for the rated notes.

A 25% reduction in expected recovery rates would lead to a downgrade of up to two notches for the rated 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.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations 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.

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.
- Loan-by-loan data provided by BNY Mellon as at 4 January 2016
- Transaction reporting provided by BNY Mellon as at 4 January 2016