Fitch Ratings has assigned expected ratings to
The issuance consists of notes backed by a pool of first-ranking Australian residential full-documentation mortgage loans originated by
RATING ACTIONS
ENTITY/DEBT RATING
A1a
LTAAA (EXP)sf Expected Rating
A1b
LTAAA (EXP)sf Expected Rating
A2
LTAAA (EXP)sf Expected Rating
A3
LTAAA (EXP)sf Expected Rating
AB
LT NR(EXP)sf Expected Rating
B
LT NR(EXP)sf Expected Rating
C
LT NR(EXP)sf Expected Rating
D
LT NR(EXP)sf Expected Rating
E
LT NR(EXP)sf Expected Rating
F
LT NR(EXP)sf Expected Rating
G
LT NR(EXP)sf Expected Rating
VIEW ADDITIONAL RATING DETAILS
TRANSACTION SUMMARY
The total collateral pool consisted of 1,706 obligors, totalling AUD750 million, at the
KEY RATING DRIVERS
Pandemic-Related Economic Shock: Fitch has made assumptions about the spread of the coronavirus and the economic impact of containment measures. In a base-case (most likely) scenario, Fitch assumes economic activity bounce in 3Q2020 is followed by a slower recovery trajectory from 4Q2020 onward amid high unemployment and further pullback in private-sector investment. Our downside (sensitivity) scenario sees a more severe and prolonged stress period, with recovery to pre-crisis GDP levels delayed until around the middle of the decade.
Pandemic-Related Impact: Measures to limit the spread of the coronavirus are affecting
'Global Economic Outlook:
'Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update', published
'Global SF Rating Assumptions Updated to Reflect Coronavirus Risk', published
In addition, analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the commentary:
'Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS', published
'Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects', published
Liquidity Risk from Payment Holidays: We reviewed the transaction's ability to survive a large proportion of borrowers taking a payment holiday. The transaction benefits from a liquidity facility that is sufficient to cover six months of required payments at the current bank-bill swap rate if no more than 80.1% of the portfolio is granted a payment holiday. The transaction can also use any principal received to pay interest if not all borrowers use a payment holiday. There were no mortgages on payment holidays as at the cut-off date.
Operational Risk:
Asset Analysis: The 'AAAsf' weighted-average foreclosure frequency (WAFF) of 12.1% is driven by the weighted-average (WA) unindexed loan/value ratio (LVR) of 68.1%, WA seasoning of 16 months and, under Fitch's methodology, self-employed borrowers of 15.8%, investment loans of 48.9% and steady-state arrears of 0.41% applied to the 60-89 day arrears category. The steady-state arrears are calculated using the five-year average 30+ day arrears to
Liability Analysis: The class A1a, A1b, A2 and A3 notes have 10% subordination. Structural features include a US-dollar class A1 note split into fixed and floating rate with a scheduled amortisation profile supported by the class A1 currency-swap provider, Australian-dollar class A3 soft-bullet notes and a liquidity facility sized at 0.75% of the invested note balance and floored at the lesser of AUD562,500 and the performing loan balance prior to the call date and AUD562,500 post-call. The notes can withstand all Fitch 'AAAsf' stresses applied in our cash-flow analysis.
Macroeconomic Factors: Fitch expects near-term mortgage performance to deteriorate, but to continue to support the Stable Outlook on the notes. We forecast
Stable Outlook: The Stable Outlook on the notes reflects liquidity support and the ability to withstand the sensitivity to higher defaults stemming from the pandemic.
RATING SENSITIVITIES
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case and are likely to result in a decline in credit enhancement and remaining loss-coverage levels available to the notes. Decreased credit enhancement may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions.
This section provides insight into the model-implied sensitivities the transaction faces when assumptions - WAFF or WARR - are modified, while holding others equal. The modelling process uses the modification of default and loss assumptions to reflect asset performance in up and down environments. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. Fitch modifies the recovery rate to isolate the effect of a change in recovery proceeds at the borrower level.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rated notes are at 'AAAsf(EXP)', which is the highest level on Fitch's scale. The ratings cannot be upgraded.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A longer pandemic than Fitch expects that leads to deterioration in macroeconomic fundamentals and consumers' financial positions in
Fitch conducted sensitivity analysis by increasing gross default levels and decreasing recovery rates over the life of the transaction.
Downgrade Sensitivity:
Notes: A1a / A1b/ A2 / A3
Expected Rating: AAAsf / AAAsf / AAAsf / AAAsf
Increase defaults by 15%: AAAsf / AAAsf / AAAsf / AAAsf
Increase defaults by 30%: AAAsf / AAAsf / AAAsf / AAAsf
Reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AAAsf
Reduce recoveries by 30%: AAAsf / AAAsf / AAAsf / AAAsf
Increase defaults by 15% and reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AAAsf
Increase defaults by 30% and reduce recoveries by 30%: AAAsf / AAAsf / AAAsf / AA+sf
The transaction structure supports LMI-independent ratings for the class A1a, A1b, A2 and A3 notes. LMI is not required to support the rating due to the level of credit support provided by the lower notes.
Coronavirus Downside Scenario Sensitivity:
Under Fitch's downside scenario, re-emergence of infections in major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a financial-market recovery. Fitch tested this scenario by increasing defaults by 15% and decreasing recoveries by 15%.
Notes: A1a / A1b/ A2 / A3
Expected Rating: AAAsf / AAAsf / AAAsf / AAAsf
Impact on note ratings of downside scenario: AAAsf / AAAsf / AAAsf / AAAsf
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with third-party due diligence information from Deloitte Touche Tohmatsu. The information was provided on Form ABS Due Diligence-15E and compared certain characteristics with respect to sample loans. Fitch considered this information in its analysis, which was not affected by the findings. A copy of Form ABS Due Diligence-15E received by Fitch in connection with this transaction may be obtained through the Dodd-Frank Rating Information Disclosure Form link contained at the bottom of the press release.
DATA ADEQUACY
As part of its ongoing monitoring, Fitch reviewed a small targeted sample of
Overall, Fitch believes the asset pool information relied upon for its rating analysis according to its applicable rating methodologies is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
Additional information is available on www.fitchratings.com
(C) 2020 Electronic News Publishing, source