OREANDA-NEWS. Fitch Ratings has affirmed Wendelstein 2015-1 UG (haftungsbeschraenkt)'s EUR17,052m class A floating-rate mortgage-backed notes (ISIN: XS1254079517) at 'AAsf' with a Stable Outlook.

The transaction is a securitisation of a pool of German residential mortgage loans originated by Deutsche Bank Privat- und Geschaeftskunden AG (DBPGK) and granted to private and business borrowers. DBPGK is a wholly-owned subsidiary of Deutsche Bank AG (DB; A-/Stable/F1).

KEY RATING DRIVERS
Updated Model Results
Fitch has updated the asset and cash flow analysis it conducted for the initial assignment of ratings. The 'AAsf' weighted average foreclosure frequency (WAFF) is 32.5% and the weighted average recovery rate (WARR) is 63.6% resulting in a portfolio loss rate of 11.8%. Fitch notes, that the cash flow model indicates moderate shortfalls in a combination of high interest rates and back-loaded default timing. These are just two of the multiple scenarios considered. In line with Fitch's Global Structured Finance Criteria and the EMEA RMBS Rating Criteria, we deemed these shortfalls commensurate with a 'AAsf' rating in light of both quantitative (additional sensitivities) and qualitative factors.

Vulnerability to Increasing Rates
Fitch observed that a mismatch between the swap's receiving leg notional (the performing asset balance) and the issuer's senior liabilities (class A note balance) could occur, especially in case of significant defaults. The resulting gap leads to insufficient funds for interest payments, which need to be covered by principal payments. This is because in a high interest rate environment the issuer's floating payments on the notes are not fully covered by floating payments received from the swap counterparty.

Revolving Period Adds Risk
With more than four years of the revolving period left, the portfolio could migrate towards higher risk characteristics, considering the replenishment capacity and limits. In addition, noteholder exposure to the risk of economic deterioration and adverse developments in the German housing market is increased. So far, changes in the portfolio composition have been moderate and the portfolio has performed in line with the expectations set out in the agency's initial rating analysis.

Exceptional Transaction Size
The large transaction size (EUR20.3bn) could jeopardise the replacement of the swap provider in the covenanted timeframe. We regard collateralisation as the most likely option should remedial action be necessary, allowing for an extended timeframe to find one or more replacement swap counterparties.

Given Deutsche Bank's status as a systemically important financial institution, Fitch assumes servicing would be continued in a resolution scenario, at least until a replacement servicer is appointed.

Deutsche Bank as Counterparty
DBPGK is an unrated subsidiary of DB, which has been downgraded since the initial analysis. It is still an eligible counterparty according to Fitch's counterparty criteria. The Outlook on DB is Stable (see Fitch's latest rating action commentary dated 8 December 2015 at www.fitchratings.com).

RATING SENSITIVITIES
Sensitivities to Changes in Assumptions
The transaction is sensitive to small changes in asset and cash flow modelling assumptions. A small reduction of the asset balance, eg from additional defaults, could leave note amounts unpaid. Given also interest payments on these amounts are paid from the principal waterfall, small unpaid amounts can accumulate to significant principal shortfalls at maturity.

Model Implied Sensitivities
In its asset analysis, for a 'AAsf' rating scenario Fitch assumed a WAFF of 32.5% and a WARR of 63.6% (using the same worst case portfolio as for the original analysis).

A 10% increase in the WAFF and a simultaneous 10% decrease in the WARR would lead to a downgrade to 'A+f' from 'AAsf'.

A 25% increase in the WAFF and a simultaneous 25% decrease in the WARR would lead to a downgrade to 'A-sf' from 'AAsf'.

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

DATA ADEQUACY
Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

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.
- Initial loan-by-loan data provided by DBPGK as at 30 June 2015
- Current loan-by-loan data provided by DBPGK as at 29 February 2016
- Transaction reporting provided by DB as at 29 February 2016
- Updates from servicer dated 16 March 2016

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