Fitch Ratings has affirmed Bowbell No.1 plc's notes (ISIN XS0552792094) at 'AAAsf' with a Stable Outlook.

The transaction is a securitisation of UK prime residential mortgage loans, originated by the Governor & Company of Bank of Ireland (BoI; BB+/Positive/B) via its Bank of Ireland UK plc and Bristol & West (B&W) brands.

KEY RATING DRIVERS

Strong Asset Performance

Over the last 12 months, transaction performance has been stable with loans with more than three monthly payments overdue decreasing marginally to 0.95% from 0.98% of the outstanding pool balance. The outstanding balance of loans with properties in possession at the end of April 2016 decreased to 0.03% from 0.04% one year prior. While arrears levels are above those seen across other prime Fitch-rated UK transactions (0.5% average), the balance of loans of properties in possession is comparable to Fitch's UK Prime RMBS Index at 0.05%. Cumulative losses generated on sold possessions in Bowbell are also low, at 0.15% of the original portfolio balance.

While the strong performance is attributable to the high overall credit quality of the collateralised assets, the portfolio contains certain risks, including interest-only loans (76.8% of the performing balance versus 80.8% of the arrear balance), and self-employed obligors (43.6% of performing versus 47.3% of arrears), with borrowers paying the BoI standard variable rate (SVR) (31% of performing versus 54.1% of arrears).

Solid Credit Enhancement (CE)

CE is currently at 52.8%% of the collateral balance and provided by over-collateralisation (class A note balance represents 51% of the collateral portfolio) and by a fully-funded, non-amortising reserve fund accounting for 4.8% of the current notes' balance. This credit protection, together with the healthy asset performance, contributed to the affirmation of the 'AAAsf' rating.

Interest Rate Risk Unhedged

No hedging agreement is in place to cover the mismatch between the SVR and the Bank of England Base Rate (BBR) paid on the notes. Within the portfolio 26.4% of loans pay the BoI SVR (4.49%) while another 7.2% of the pool is represented by fixed-rate loans, approximately 4.6% of which will switch to the SVR by end 2020. Therefore, in its analysis Fitch reduced the credit given to the excess spread generated by the structure to account for the interest rate mismatch but found no rating impact.

Ineligible Account Bank

National Westminster Bank (NatWest; BBB+/Stable/F2) is the account bank in the transaction. Following the downgrade of NatWest, the bank was no longer eligible to support 'AAAsf' rated notes, as specified in Fitch's counterparty criteria.

To mitigate this risk, the issuer has allowed the transfer of funds to a GIC account held at Societe Generale (A/Stable/F1), where the reserve fund also stands. Payments to the noteholders and other transaction parties are made directly from the GIC account at each payment date.

RATING SENSITIVITIES

As the transaction is exposed to interest rate risk, negative movements in interest rates beyond Fitch's expectations could trigger rating actions on the 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 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 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.