Fitch Ratings has assigned final ratings to
The issuance consists of notes backed by a pool of first-ranking Australian residential conforming and non-conforming full- and low-documentation mortgage loans originated by
RATING ACTIONS
Entity / Debt
Rating
Prior
A1 AU3FN0085759
LT
AAAsf
New Rating
A2 AU3FN0085767
LT
AAAsf
New Rating
AB AU3FN0085775
LT
AAAsf
New Rating
B AU3FN0085783
LT
NRsf
New Rating
NR(EXP)sf
C AU3FN0085791
LT
NRsf
New Rating
NR(EXP)sf
D AU3FN0085809
LT
NRsf
New Rating
NR(EXP)sf
E AU3FN0085817
LT
NRsf
New Rating
NR(EXP)sf
F AU3FN0085825
LT
NRsf
New Rating
NR(EXP)sf
G AU3FN0085833
LT
NRsf
New Rating
NR(EXP)sf
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The collateral pool totalled AUD750 million and consisted of 1,176 obligors, with a weighted-average (WA) current loan/value ratio (LVR) of 67.5% and a WA indexed current LVR of 62.6% as of the
KEY RATING DRIVERS
Sufficient Credit Enhancement Mitigates Expected 'AAAsf' Losses: The 'AAAsf' WA foreclosure frequency (WAFF) of 19.2% is driven by the WA unindexed LVR of 67.5%, non-conforming loans under Fitch's methodology forming 20.8% of the pool, low-documentation loans accounting for 91.8% and Fitch-calculated self-employed borrowers and investment loans making up 93.9% and 36.5%, respectively.
The 'AAAsf' lenders' mortgage insurance (LMI) dependent WA recovery rate (WARR) of 56.4% is driven by the portfolio's WA indexed scheduled LVR of 65.3%. The class A1 and A2 notes benefit from credit enhancement (CE) of 20.0% and AB notes 12.0%. The 'AAAsf' portfolio loss of 8.4% is lower than the 8.9% at expected rating.
Limited Liquidity Risk: The transaction benefits from a liquidity facility sized at 1.5% of the Class A1 to F invested note balance, with a floor of AUD1.125 million that is sufficient to mitigate Fitch's payment interruption risk. Other structural features include a retention amount with a AUD7.5 million limit that redirects excess income to repay note principal in reverse sequential order starting from the Class F notes, and a post call amortisation amount that distributes excess income to repay note principal in sequential order. The class A1, A2 and AB notes can withstand all relevant Fitch stresses applied in our cash flow analysis.
Low Operational Risk:
Tight Labour Market to Support Outlook: Portfolio performance is supported by
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Transaction performance may be affected by changes in market conditions and the economic environment. Weakening asset performance is strongly correlated with increasing delinquencies and defaults, which could reduce the CE available to the notes.
Downgrade 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 CE and remaining loss-coverage levels available to the notes. Decreased CE 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.
The rating sensitivity 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 should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors.
Note: A1 / A2 / AB
Final Rating: AAAsf / AAAsf / AAAsf
Increase defaults by 15%: AAAsf / AAAsf / AAAsf
Increase defaults by 30%: AAAsf / AAAsf / AA+sf
Reduce recoveries by 15%: AAAsf / AAAsf / AAAsf
Reduce recoveries by 30%: AAAsf / AAAsf / AAAsf
Increase defaults by 15% and reduce recoveries by 15%: AAAsf / AAAsf / AAAsf
Increase defaults by 30% and reduce recoveries by 30%: AAAsf / AAAsf / AA+sf
The transaction structure supports an LMI-independent rating for the A1, A2 and AB notes, as LMI is not required to support the rating due to the level of credit support provided by the lower notes.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The rated notes are at the highest level on Fitch's scale and cannot be upgraded. As such, upgrade sensitivity scenarios are not relevant.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
Prior to the transaction closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available for this transaction.
As part of its ongoing monitoring, Fitch reviewed a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.
Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable.
Date of Relevant Committee
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'.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Additional information is available on www.fitchratings.com
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