Fitch Ratings has affirmed Uropa Securities plc Series 2007-01B (Uropa 2007) and Uropa Securities plc Series 2008-1 (Uropa 2008), both UK non-conforming RMBS transactions. A full list of rating actions is at the end of this commentary.

Uropa Securities Plc is a shelf established in May 2007 that was created to securitise non-conforming mortgages purchased by ABN AMRO (Uropa 2007) and Topaz Finance Plc (Uropa 2008). Both transactions have a large proportion of loans originated at the peak of the market.

KEY RATING DRIVERS

Adequate Credit Enhancement

Both deals are currently paying down sequentially but can switch to a pro-rata pay down. Uropa 2007 may switch to pro-rata in the next 12 months as the relevant triggers are close to being met. In contrast, Fitch does not expect Uropa 2008 to switch to pro-rata in the near future as the conditions are unlikely to be met. Fitch believes that the available credit enhancement is sufficient to withstand the stress scenarios associated with the ratings, which is reflected in the affirmations.

Stable Asset Performance

As of end-March 2016 three-months plus arrears for both transactions are below 6%, lower than Fitch's UK non-conforming index of 9.8%. Nonetheless, the average loss severity incurred to date has exceeded 30% in both deals, translating into fairly large losses following the sale of repossessed properties. Fitch believes that to a certain extent, this is driven by a large proportion of loans that were originated at the peak of the market. This is particularly the case for Uropa 2008, where the share of loans originated in 2007 was 70.5%.

The fairly low levels of arrears have translated into smaller losses more recently. Uropa 2007 continues to have a fully funded reserve fund (RF), amounting to 2.9% of its current note balance. Uropa 2008 does not have an RF.

With minimal volumes of unsold properties in possession, at or below 40bp, losses are expected to remain limited in the near future. Consequently, asset performance and sufficient credit support have led to the affirmations.

Unhedged Basis Risk

Following the amendments to the rating trigger for the swap provider in Uropa 2008, Fitch now considers the basis rate mismatch between the Libor-linked notes and the BBR-linked mortgages as unhedged. BBR-linked mortgages make up 93.1% of the current pool, and Fitch accounted for this unhedged basis risk by reducing the excess spread generated by the BBR-linked portions of the portfolio.

Uropa 2007 has a basis and currency swap in place.

Liquidity Cover

Both transactions benefit from sizeable liquidity support. Uropa 2007 has an undrawn liquidity facility (LF) of 7.75% of the initial class A2, A3, A4, M1, M2, B1 and B2 note balance (currently 11.5% of the current balance of the notes listed above) while Uropa 2008 has a liquidity reserve fund (LRF) of 7.7% of the initial note balance (currently 11.4% of the outstanding note balance). The LF and LRF can no longer amortise due to irreversible breaches in the cumulative loss performance triggers (i. e. both have exceeded 1.25% of the initial note balance).

This provides sufficient liquidity to cover at least four interest payment dates on the senior fees and interest on the senior notes in case of default of the servicer or the collection account bank.

CRITERIA VARIATION

Fitch applied a variation from its "Counterparty Criteria for Structured Finance and Covered Bonds", published 14 May 2014 (Counterparty Criteria). Deutsche Bank AG (A-/Stable/F1) is currently the swap collateral account bank provider and it holds significant funds posted under the Uropa 2007 swaps. Fitch considers the collateral posted to be of direct material credit support to the transaction. The ratings do not reflect minimum rating thresholds expected in the Counterparty Criteria for counterparties supporting transactions where the senior note is rated 'AAAsf'. However, based on the current "Exposure Draft of the Counterparty Criteria for Structured Finance and Covered Bonds" dated 14 April 2016 (https://www. fitchratings. com/site/re/878412&cft=0), the Short-Term rating of 'F1' would be sufficient for it to act as derivative counterparty. Therefore the agency has not taken any action on the securitisations resulting from this counterparty exposure at this time. In the event that this aspect is not converted into criteria, the transaction will be subject to further review.

RATING SENSITIVITIES

The transactions are backed by floating-interest-rate loans. In the current low interest rate environment, borrowers are benefiting from low borrowing costs. An increase in interest rates could lead to performance deterioration of the underlying assets and consequently downgrades of the notes if defaults and associated losses exceed those of Fitch's stresses.

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.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions 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.

Fitch did not review the results of a third party assessment conducted on 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 Homeloan Management Limited as at March 2016 for Uropa 2007-1 and as at February 2016 for Uropa 2008-1

Transaction reporting provided by Topaz Finance Plc for Uropa 2007 as at March 2016 and Uropa 2008 as at March 2016