Fitch revises Auburn 15 junior notes outlook to stable, affirms Auburn 15 and Oat Hill No.3 ratings

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Fitch revises Auburn, Oat Hill outlook

Highlights

Auburn 15 PLC's class E and F notes outlook shifts to Stable from Negative, while Fitch affirms Auburn 15 and Oat Hill No.3 ratings.
Fitch applies borrower-level recovery rate caps of 85% at 'Bsf' and 65% at 'AAAsf' for buy-to-let loans and a 1.5x foreclosure frequency adjustment.
In a stress scenario with a 15% rise in foreclosure frequency and 15% drop in recovery rate, Auburn 15's class F faces distressed rating risk, Oat Hill No.3's class F drops to 'BB-sf'.

Rating action and transaction assumptions

As reported by Fitch Ratings, Auburn 15 PLC's class E to F notes now carry a Stable Outlook instead of Negative, while the agency affirms the ratings of Auburn 15 and Oat Hill No.3 PLC. The two transactions are securitisations of buy-to-let and owner-occupied residential mortgage assets originated by Capital Home Loans Limited and secured against properties in the UK.

Fitch says the collateral in both deals was previously securitised, with Auburn 15 backed by assets from the Towd Point Mortgage Funding Auburn series, most recently Auburn 12, 13 and 14, and Oat Hill No.3 backed by assets from Oat Hill No. 1 and Oat Hill No. 2. Topaz currently acts as servicer for both transactions.

The agency says reported loss severity across both transactions implies recovery rates below those assumed under its criteria. It therefore applies borrower-level recovery rate caps to buy-to-let loans, in line with non-conforming loan treatment, at 85% at 'Bsf' and 65% at 'AAAsf'. Fitch also says the class B to F note ratings of Oat Hill No.3 are affirmed below their respective model-implied ratings to avoid rating volatility if realised recovery rates remain persistently weak.

Fitch also applies its buy-to-let specific assumptions to the buy-to-let sub-pools in both transactions, including a 1.5x transaction adjustment to foreclosure frequency. That adjustment reflects historical performance in which the share of loans in three-month-plus arrears consistently underperforms Fitch's buy-to-let index.

Performance trends and rating sensitivity

Performance across both transactions remains broadly stable since the prior review, according to Fitch. One-month-plus and three-month-plus arrears show modest year-on-year improvement in both pools, while the pace of arrear build-up stabilises.

A meaningful portion of delinquent buy-to-let loans continues to be managed through the receiver of rent mechanism, which helps contain loss realisation. Fitch says this stable asset performance, together with the credit enhancement available to the notes, underpins the current rating actions and the revised Stable Outlook on Auburn 15's class E and F notes.

The agency says downside risks remain tied to adverse market and economic changes, which can drive higher delinquencies and defaults and erode credit enhancement. Under a stress scenario of a 15% rise in weighted average foreclosure frequency and a 15% fall in weighted average recovery rate, Auburn 15's class F would move to a distressed rating, while Oat Hill No.3's class F would fall to 'BB-sf'.

On the upside, Fitch says improving market conditions, a better economic environment and further credit enhancement build-up could support positive rating actions. In a scenario with a 15% decline in weighted average foreclosure frequency and a 15% increase in weighted average recovery rate, Auburn 15's class F would imply 'BB+sf', while Oat Hill No.3's class F would imply 'A+sf'.

Our earlier report on Convex Group’s AM Best rating affirmation outlined how its key insurance and reinsurance subsidiaries kept their A (Excellent) Financial Strength Ratings with stable outlooks as the group expanded its underwriting platform. We noted that the stable view was supported by very strong risk-adjusted capitalisation and solid liquidity, with leverage expected to rise after a planned USD 600 million subordinated debt issuance but remain below 10%.

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