December 7, 2017 / 5:39 PM / a year ago

Fitch Upgrades Various Classes of Fontwell Securities 2016 Limited

(The following statement was released by the rating agency) LONDON, December 07 (Fitch) Fitch Ratings has upgraded the ratings on seven classes and affirmed the remaining 12 classes of Fontwell Securities 2016 Limited as follows: Class A: affirmed at'AAsf'; Outlook Negative Class B: affirmed at 'AAsf'; Outlook Negative Class C: affirmed at 'AAsf'; Outlook Negative Class D: affirmed at 'AAsf'; Outlook Negative Class E: upgraded to 'AAsf' from 'AA-sf'; Outlook revised to 'Negative' from 'Stable' Class F: affirmed at 'A+sf'; Outlook Stable Class G: upgraded to 'A+sf' from 'Asf'; Outlook Stable Class H: upgraded to 'A+sf' from 'A-sf'; Outlook Stable Class I: affirmed at 'BBB+sf'; Outlook Stable Class J: affirmed at 'BBB+sf'; Outlook Stable Class K: upgraded to 'BBB+sf' from 'BBBsf'; Outlook Stable Class L: upgraded to 'BBBsf' from 'BBB-sf'; Outlook Stable Class M: affirmed at 'BB+sf'; Outlook Stable Class N: affirmed at 'BBsf'; Outlook Stable Class O: upgraded to 'BBsf' from 'BB-sf'; Outlook Stable Class P: affirmed at 'B+sf'; Outlook Stable Class Q: upgraded to 'B+sf' from 'Bsf'; Outlook Stable Class R: affirmed at 'B-sf'; Outlook Stable Class S: affirmed at 'CCCsf'; Class T: unrated The transaction is a granular synthetic securitisation of partially funded credit default swaps (CDS) referencing a static portfolio of secured loans granted to UK borrowers in the farming and agriculture sector. The loans were originated by AMC plc (AMC), a fully owned subsidiary of Lloyds Bank plc (Lloyds, A+/Stable/F1). The ratings of the notes address the likelihood of a claim being made by the protection buyer under the CDS by the end of the seven-year protection period, in accordance with the documentation. KEY RATING DRIVERS The upgrade of the notes reflects the increase in the credit enhancement due to transaction's deleveraging since March 2017. The revision in the Outlook for the class E is on account of the maximum rating that the notes can achieve, due to the Subsidy Support Threshold. The class A notes have partially amortised by GBP121 million over the past year. The deleveraging led to a slight increase in the credit enhancement available for all the notes. The transaction has performed better than the expectations with delinquencies of less than 0.1%, which is lower than the expected annual average probability of default (PD) for the SME sector in the UK over the next five years. However, Fitch continues to assign a one-year average PD (based on 90 days past due) of 2.0% to all the borrowers in the portfolio, on account of risks associated with Brexit. The weighted average LTV of the portfolio is 31.6%; however, any additional lending could reduce the collateral share for the securitised exposures. Fitch has stressed the LTV to 50%. The farming and agricultural sector continues to be highly dependent on direct subsidies, currently provided by the European Union; these would be replaced by UK subsidiaries after Brexit. Fitch places the SST at the Long-Term Issuer Default Rating of the UK (AA). The SST constrains the maximum achievable rating in the capital structure. The vast majority of available collateral is over agricultural land, which has seen an increase in value over the last 10 years of approximately 200%. In the recovery analysis, Fitch has applied its commercial property haircuts, which at the 'AA' level, are 75% and would reverse most of the increase experienced over the last 10 years. RATING SENSITIVITIES Increasing the default probabilities assigned to the underlying obligors by 25% could result in a downgrade of up to three notches for the H notes and up to two notches for the other classes. Decreasing the recovery rates assigned to the underlying obligors by 25% could result in a downgrade of up to two categories for the class M notes and up to five notches for the other classes. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch 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 affected the rating 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 a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected 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. Loan-by-loan data provided by Lloyds Bank Plc as at 12 November 2017 Transaction reporting provided by Lloyds Bank Plc as at 12 November 2017 Contacts: Primary Analyst Ekta Gupta Analyst +44 20 3530 1921 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Matthias Neugebauer Managing Director +44 20 3530 1099 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Global Structured Finance Rating Criteria (pub. 03 May 2017) here SME Balance Sheet Securitisation Rating Criteria (pub. 03 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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