OREANDA-NEWS. Fitch Ratings has affirmed Auburn Securities 4 Plc (Auburn 4) as follows:

Class A2 (ISIN XS0202810064): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS0202810734): affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0202811039): affirmed at 'AAAsf'; Outlook Stable
Class C (ISIN XS0202811625): affirmed at 'AAsf'; Outlook Stable
Class D (ISIN XS0202812276): affirmed at 'A-sf'; Outlook Stable
Class E (ISIN XS0202812516): affirmed at 'BB+sf'; Outlook Stable

The transaction comprises buy-to-let (BTL) loans originated by Capital Home Loans (CHL).

KEY RATING DRIVERS
Healthy Asset Performance
Auburn 4 has shown strong performance, with late stage arrears (loans with more than three monthly payments overdue) decreasing to 0.85% of the current portfolio balance as of end-February 2016 from their peak of 2.8% in April 2009. This compares favourably with the BTL wider market performance, particularly post 2009. Given the current low pipeline of late-stage arrears in the transactions, Fitch expects possession activities and associated losses to remain minimal in the coming 12 months, as reflected in the Stable Outlook across the structure.

Sufficient Credit Enhancement
Annualised gross excess spread in Auburn 4 is 80bp of the outstanding pool balance. The relatively low level of excess spread offers limited protection against period losses and led to marginal reserve fund draws in the past year. Given the limited volume of properties currently in possession (0.4% of current pool balances), Fitch expects future losses and reserve fund draws to remain minimal. The credit enhancement available to the rated notes remains sufficient as reflected by their affirmation.

Unhedged Interest Rate Risk
The Auburn 4 pool comprises loans linked to CHL's standard variable rate (SVR; 2.4% of the portfolio) and to the Bank of England base rate (BBR; 97.4%). The mismatch between the interest rates paid on the portfolio and the one-month Libor payable on the notes is hedged through basis swaps with Permanent TSB (not rated) acting as the swap provider. Given the ineligibility of Permanent TSB, Fitch treats this transaction as unhedged. In its analysis, Fitch applied further stresses on the transaction by reducing the revenue generated by the BBR mortgages. This was done by haircutting the mortgage margins in the first year by up to 200bp (depending on the rating scenario) and then 50bp each year thereafter, with the margin floored at zero. The analysis showed that the resulting reduction in excess spread had no impact on the notes' ratings.

RATING SENSITIVITIES
Significant increases in defaults and losses beyond Fitch's expectations could lead to a further reduction of excess spread and increase the pace at which reserve fund draws occur. This may have a negative impact on the credit support available to 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 did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. 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 and together with the assumptions referred to above, 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 CHL as at 31 December 2015.
- Transaction reporting provided by CHL as at 25 January 2016.