RPT-Fitch affirms Provide VR 2003-1

Tue Feb 4, 2014 8:26am EST

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Feb 4 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Provide VR 2003-1 Plc, as follows.

Senior credit default swap: paid in full

Class A+ (ISIN DE000A0AAZ03): paid in full

Class A (ISIN DE000A0AAZ11): paid in full

Class B (ISIN DE000A0AAZ29): affirmed at 'AAsf'; Outlook Stable

Class C (ISIN DE000A0AAZ37): affirmed at 'BBBsf'; Outlook Stable

Class D (ISIN DE000A0AAZ45): affirmed at 'CCsf'; Recovery Estimate (RE) 70%

Class E (ISIN DE000A0AAZ52): affirmed at 'Csf'; RE 0%

Class F: NR

The transaction is a synthetic securitisation backed by residential mortgages originated by several institutions belonging to the German Cooperative Banking group.

KEY RATING DRIVERS

Since the last review in February 2013, additional losses of EUR0.6m have been realised and allocated to the class E notes. Cumulative losses since closing in December 2003 currently stand at 2.2% of the original pool balance. The class F notes (not rated) have been completely eliminated by loss allocation (EUR6.1m). The class E notes have also incurred EUR4m losses. Of their initial balance of EUR4.4m, currently only EUR0.4m are outstanding (based on the latest investor report as of December 2013).

Overall, the deal is performing worse than Fitch's initial expectations and we expect the class E notes to be reduced to zero through further loss allocation, as outstanding foreclosures currently in the portfolio turn into losses. Given the small outstanding balance of the class E notes, losses are also likely to be allocated to the class D notes. This expectation is factored into the notes' ratings and REs and consequently their affirmation.

The class B and C notes have built up substantial credit enhancement through amortisation. The portfolio has amortised to approximately 8% of its initial balance. As a result, they are able to withstand losses commensurate with their current ratings, as reflected in their affirmation.

RATING SENSITIVITIES

The transaction remains exposed to further loss allocation, as outstanding foreclosures in the portfolio (currently approximately EUR2m) translate into losses. We expect additional losses to be allocated to the class E notes (thus fully eliminating them) and also to the class D notes. At the same time, we expect the relative credit enhancement for the class B and C notes to further increase via amortisation, resulting in additional protection.

Fitch assigns REs to all notes rated 'CCCsf' or below. REs are forward-looking, taking into account Fitch's expectations for principal repayments on a distressed structured finance security.

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