OREANDA-NEWS. Fitch Ratings has affirmed Penates Funding N.V./S.A. Compartment Penates-1 and Penates-4, as follows:

Penates Funding N.V.-S.A. Compartment Penates-1 (Penates-1):
Class A (BE0002373455) affirmed at 'A+sf'; Outlook Stable
Class B (BE0002374461) affirmed at 'A+sf'; Outlook Stable
Class C (BE0002375476) affirmed at 'A+sf'; Outlook Stable
Class D (BE0002376482) affirmed at 'BBBsf'; Outlook Stable

Penates Funding N.V.-S.A. Compartment Penates-4 (Penates-4):
Class A (BE0002408806) affirmed at 'A+sf'; Outlook Stable
Class B (BE6228345722) affirmed at 'BBB+sf'; Outlook Postive

The transactions are collateralised by Belgian residential loans originated and serviced by Belfius Bank (Belfius, BBB+/Positive/F2).

KEY RATING DRIVERS
Robust Performance
The affirmations reflect the robust performance of the underlying assets in both transactions, which is better than Fitch's initial expectations. As of the most recent payment dates, one-month plus arrears stood at 0.11% of the current pool balance for both transactions. Cumulative defaults since closing represent 0.55% and 0.90% of the initial portfolio balance and have been entirely provisioned through the principal deficiency ledgers. The transactions benefit from healthy levels of excess spread provided by a retained margin on the swap payments made by the issuers of 35bps and 45bps for Penates-1 and Penates-4, respectively. In addition, the reserve fund has started to amortise in both transactions as the class A notes are now more than 50% amortised, providing additional excess spread to the structures.

Adequate Credit Enhancement
Penates-1 and Penates-4 are benefiting from increased credit enhancement due to the amortisation of the senior notes. Credit enhancement is provided by subordination and the reserve funds. The reserve fund for Penates-1 can be used to cover defaults through the principal deficiency ledger while for Penates-4, the reserve can only be used to cover liquidity shortfalls so that only the amortisation of the reserve provides credit enhancement.

No commingling reserve is in place for Penates-1. However, the agency considered that the credit enhancement available for the class A to C notes is adequate to cover this risk. To the extent the class D notes is rated below Belfius' rating, Fitch considered that commingling risk is remote in the class D notes' rating scenario.

A commingling reserve will be funded by Belfius upon its downgrade below 'BBB+'/'F2' under the Penates-4 transaction.

Rating Cap
Both transactions' ratings are capped at 'A+sf' due to level of the rating triggers associated with the account bank and swap counterparty roles. As per the transaction documents, Belfius is able to fulfil both roles as long as it is rated at least 'BBB+'/'F2'. This trigger is consistent with ratings up to the 'A' category as per Fitch's counterparty criteria.

In addition, Penates 4's junior swap agreement does not include any triggers or replacement language. Hence, the class B notes in Penates 4 are credit-capped at Belfius's rating. The Positive Outlook on the class B notes reflects the Positive Outlook on Belfius's rating.

RATING SENSITIVITIES
Deterioration in asset performance may result from economic factors, in particular the increasing effect of unemployment. A corresponding increase in new defaults and associated pressure on excess spread levels and reserve fund could result in negative rating action.

The ratings of the credit-capped class B notes will continue to reflect changes to the Issuer Default Rating of Belfius. If Fitch considers counterparty risk has increased as a result of the weakening of Belfius Bank in its junior interest rate swap provider role then the class B notes may be placed on Rating Watch Negative and ultimately downgraded if the risk is not adequately mitigated.

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 pools and the transactions. 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.

For Penates-1, 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.

For Penates-4, prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated few errors or missing data related to the collateral information (such as the ranking of the mortgage, the mortgage or mandate amount or the property postcode) and to the borrowers' information (such as the debt-to-income or employment status). These findings were not considered in this analysis as they are immaterial.

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 the servicer as at January 2016 and February 2016 for Penates-1 and Penates-4 respectively
- Transaction reporting provided by the servicer as at January 2016 and February 2016 for Penates-1 and Penates-4 respectively

REPRESENTATIONS AND WARRANTIES
For Penates-4, 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 new issue report (see Penates Funding N.V./S.A. Compartment Penates-4 - Appendix, dated 19 December 2011 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.