OREANDA-NEWS. Fitch Ratings has affirmed Leone Arancio Finance S.r.l., a prime Italian RMBS backed by residential mortgage loans granted by ING Bank NV, Italian branch (ING), as follows:

Class A1 (ISIN IT0004643521): affirmed at 'AA+sf'; Outlook Stable
Class A2 (ISIN IT0004643976): affirmed at 'AA+sf'; Outlook Stable

KEY RATING DRIVERS

Stable Asset Performance
Loans in arrears for three months or longer represent 0.13% of the outstanding collateral balance, outperforming Fitch's Italian three-months-plus arrears index, which registers a value of 1.6%. As per transaction documentation, ING buys back all the loans classified as defaulted. According to repurchase information from ING, cumulative gross defaults represent only 0.5% of the original pool balance, significantly below the agency's Italian cumulative gross defaults index (4.1%). Fitch believes that the repurchasing commitment of ING does not create excessive counterparty exposure, given the limited amount of defaults so far.

The low volume of arrears and defaults are driven by a conservative lending policy as illustrated in the average original loan-to-value ratio of the pool (58.7%) and by the origination period, mainly between 2009 and 2010, being post financial crisis. As a result, we expect the stable asset performance to continue, as reflected in today's rating action.

Increasing Credit Enhancement
Credit enhancement available to the class A1 and A2 notes has over the past 12 months increased to 15.3% from 13.6%, which is sufficient to support the ratings. The build-up is explained by stable repayment of the collateral, which is amortising at an average annual rate of 7.5% since the revolving period ended in October 2013.

Payment Interruption Risk Mitigated
Fitch tested the possibility of a disruption to the note interest payments, following the default of ING as transaction servicer. The payment interruption risk is mitigated by a fully funded liquidity facility of EUR78m, together with additional protection offered by principal funds, which can be used to cover any interest shortfall exceeding the liquidity facility. In addition, upon a downgrade of ING (A+/Negative/F1+) to below 'A'/'F1', a back-up servicer will be appointed immediately.

Limited Loan Modifications
Loan in payment holidays and with extended maturities are repurchased by ING, as per transaction documentation. ING communicated that the repurchases have reached a cumulative value of EUR61.2m (1.18% of the original collateral balance) to date. Additionally, a cash reserve of EUR9.5m is available to cover potential losses resulting from loan modifications, and ensures the transaction receives the same cash flows that would have been cashed in according to the original mortgage agreement.

RATING SENSITIVITIES

Changes to Italy's Long-term Issuer Default Rating (BBB+/Stable) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes to the rated tranches.

A rise in interest rates above Fitch's expectations could negatively affect the performance of floating-rate loans originated in a low interest rate environment (52% of the performing pool).