Barrow Funding class B notes upgraded as Fitch affirms other tranches
Credit enhancement has continued to build in Barrow Funding PLC's UK mortgage securitisation, supporting an upgrade of the class B notes while leaving the remaining tranches unchanged. The transaction is backed by non-conforming owner-occupied mortgages originated by Bank of Scotland Plc in the UK between 2003 and 2009.
Highlights
- Fitch upgraded Barrow Funding PLC's class B notes to AAsf from AA-sf and affirmed class A at AAAsf, C at A-sf, D at BBB-sf, E at BBsf, and F at Bsf.
- Credit enhancement has strengthened since the November 2025 review due to loan redemptions, sequential amortisation, and a growing reserve fund, supporting the ratings actions.
- Late-stage arrears remain stable at 16.2%, with 11.5% of the pool classified as defaulted and prolonged recovery timing weighing on lower-rated tranches.
Credit support strengthens across the structure
As reported by Fitch Ratings, the agency has upgraded Barrow Funding PLC's class B notes to AAsf from AA-sf and affirmed the other outstanding notes, including the class A notes at AAAsf, class C at A-sf, class D at BBB-sf, class E at BBsf and class F at Bsf.Fitch says all notes have benefited from a build-up in credit enhancement since the November 2025 review. The increase is driven by loan redemptions or repurchases from the pool, sequential amortisation and a reserve fund that builds as the liquidity reserve amortises. Fitch says that improvement supports the class B upgrade and the affirmation of the remaining notes.
Arrears profile remains stable but recovery timing is a risk
Late-stage arrears of three months or more remain stable at 16.2%, while loans six months or more in arrears are broadly flat at 13.3%. Fitch says arrears have not worsened in absolute terms, but their share of the outstanding pool is unlikely to fall materially because the securitisation is amortising through the exit of performing loans.Fitch classifies 11.5% of the pool as defaulted, assuming only principal recovery on loans more than 12 months in arrears. Of that total, 10.2% of the pool is more than 18 months in arrears, and Fitch says increasingly uncertain and prolonged recovery timing could weigh on the notes. As a result, the agency is constraining the ratings on the class C, D, E and F notes below their respective model-implied ratings, while affirming those tranches at their current levels.
Our earlier coverage of Hainan Rubber’s proposed subordinated perpetual sustainable securities explained how Fitch rated the instruments BBB- due to their junior ranking in the capital structure and the issuer’s ability to defer coupons. We also outlined Fitch’s view on the group’s high leverage and liquidity profile, as well as the role of expected support from its state-linked parent in underpinning funding access.
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