February 16, 2017 / 4:49 AM / 6 months ago

Fitch Assigns Final Ratings to Series 2017-1 REDS Trust

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Series 2017-1 REDS Trust here SYDNEY, February 15 (Fitch) Fitch Ratings has assigned final ratings to Series 2017-1 REDS Trust's mortgage-backed floating-rate notes. The issuance consists of notes backed by Australian residential mortgages originated by Bank of Queensland Limited (BOQ, A-/Stable/F2). The ratings are as follows: AUD920.0m Class A1 notes: 'AAAsf'; Outlook Stable; AUD37.5m Class A2 notes: 'AAAsf'; Outlook Stable; AUD17.0m Class AB notes: 'NRsf'; AUD15.0m Class B notes: 'NRsf'; AUD9.4m Class C notes: 'NRsf'; and AUD1.1m Class D notes: 'NRsf'. The notes were issued by Perpetual Trustee Company Limited in its capacity as trustee of Series 2017-1 REDS Trust. The total collateral pool consisted of 4,367 loans, totalling AUD990m at the 9 February 2017 cut-off date. KEY RATING DRIVERS Sufficient Credit Support: The class A1 notes have sufficient credit enhancement of 8.00%, provided by the class A2, AB, B, C, and D notes, and is independent of any credit provided by lenders' mortgage insurance (LMI). The rating of the class A2 notes is based upon the credit support of 4.25% provided by the subordinated notes and is independent of LMI credit. Pool Characteristics: The portfolio has weighted-average (WA) seasoning of 36 months, a WA unindexed current loan/value ratio (LVR) of 58.3% and a WA indexed current LVR of 56.7%. The average obligor current loan size is AUD265,415. Under Fitch's methodology, investment loans represent 32.5% of the pool by balance, interest-only loans represent 21.1% and fixed-rate loans 24.3%. LMI is present on 100% of the pool. Sequential/Pro Rata Paydown: Classes A1 and A2 will initially receive principal on a pari passu basis, with all other note classes receiving principal sequentially prior to the pro rata test conditions being met. Once the pro rata tests are met, principal will be allocated on a pro rata basis across all notes. Soft Bullet Note: The class A1 notes may be redeemed in full on the scheduled maturity date in February 2022, or any payment date thereafter. The redemption of the notes will be funded through the issuance of refinancing notes to be known as class A1-R. In the event the class A1 notes are not refinanced on the scheduled maturity, the class A1 coupon will step-up by an additional 35bp. Sufficient Liquidity Support: Liquidity support will be provided via excess spread, principal draws and a liquidity reserve sized at 1.0% of the aggregate invested notes balance. The liquidity reserve will amortise, subject to the floor of AUD1m. 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 of the ratings by stressing the transaction's initial base-case assumptions. Its analysis found that the class A1 and A2 notes were not affected when foreclosure stresses were increased by 15% or 30% or when recovery rates were decreased by 15% or 30%. Under a combination stress of 15% increase in defaults and 15% decrease in recoveries, the notes' ratings remained stable at 'AAAsf'. When the combined stresses were further increased to 30%, the rating on the class A1 and A2 notes came down to 'AA+sf'. The transaction structure supports an LMI independent rating for the class A1 and A2 notes; therefore, LMI is not required to support the rating due to the level of credit support provided by the lower notes. 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. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) disclosed in the offering document that relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. 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," dated 31 May 2016. DATA ADEQUACY As part of its ongoing monitoring, Fitch reviewed a small targeted sample of BOQ'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. Prior to the transaction closing, Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Key rating drivers and rating sensitivities are further discussed in the corresponding new issue report entitled "Series 2017-1 REDS Trust", published today. SOURCES OF INFORMATION The information below was used in the analysis: -Loan-by-loan data provided by BOQ as at 9 February 2017 -Transaction documentation provided by Allen & Overy, the issuer's counsel The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. RESI INVESTOR This transaction is included in Fitch's Resi Investor tool (resi.fitchratings.com). Resi Investor allows users to conduct their own scenario analysis. The tool allows investors to vary Fitch's rating assumptions to calculate their own expected losses and model-implied rating outcomes. It also allows investors to generate pivot table-type stratification tables, interactive charts and transaction comparisons. Contacts: Primary Analyst Brenden Asplin, CFA Associate Director +612 8256 0340 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst Spencer Wilson Associate Director +612 8256 0320 Committee Chairperson Natasha Vojvodic Senior Director +612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com Applicable Criteria APAC Residential Mortgage Criteria (pub. 30 Aug 2016) here Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016) here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016) here Global Criteria for Lenders’ Mortgage Insurance in RMBS (pub. 28 Jul 2016) here Global Structured Finance Rating Criteria (pub. 27 Jun 2016) here Related Research Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions here Series 2017-1 REDS Trust - Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019071 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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