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Fitch Assigns Expected Ratings to Illawarra Series 2017-1 RMBS Trust
May 15, 2017 / 12:03 AM / 7 months ago

Fitch Assigns Expected Ratings to Illawarra Series 2017-1 RMBS Trust

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Illawarra Series 2017-1 RMBS Trust here SYDNEY, May 14 (Fitch) Fitch Ratings has assigned expected ratings to Illawarra Series 2017-1 RMBS Trust's mortgage-backed floating-rate notes. The issuance consists of notes backed by Australian residential mortgages originated by IMB Ltd. The ratings are as follows: AUD276.00 million Class A notes: 'AAA(EXP)sf'; Outlook Stable AUD12.03 million Class AB notes: 'AAA(EXP)sf'; Outlook Stable AUD6.96 million Class B notes: 'NR(EXP)sf' AUD3.96 million Class C notes: 'NR(EXP)sf' AUD1.05 million Class D notes: 'NR(EXP)sf' The notes will be issued by BNY Trust Company of Australia Limited in its capacity as trustee of Illawarra Series 2017-1 RMBS Trust. The total collateral pool consisted of 1,289 obligors, totalling AUD300 million, at the 25 April 2017 cut-off date. The loan pool will be finalised prior to the closing date and adjusted to match the final liability balance. KEY RATING DRIVERS Sufficient Credit Support: The class A notes have sufficient credit enhancement of 8.0% provided by the class AB, B, C and D notes and are independent of any credit provided by lenders' mortgage insurance (LMI). The class AB notes have sufficient credit enhancement of 4.0% provided by the class B, C and D notes and LMI. Pool Characteristics: The weighted-average (WA) seasoning of the portfolio is 74 months, with a WA unindexed loan/value ratio (LVR) of 64.6% and WA indexed LVR of 56.0%. The average obligor current loan size is AUD232,736; investment loans represent 30.5% of the pool by balance and interest-only loans represent 15.8%. LMI is present on 100% of the pool. Sequential/Pro Rata Paydown: Interest is paid sequentially after expenses towards all note classes. The reimbursement of losses is paid after the distribution of interest on all note classes. Principal is allocated pro rata towards the class A, AB, B, C and D notes if the step-down requirements are met. Sufficient Liquidity Support: Liquidity support is provided via excess spread, an excess revenue reserve that traps excess income up to a target balance of AUD1 million, principal draws and a liquidity facility sized at 1.0% of the note balance, with a facility floor of 0.15% of the original note balance at closing. The liquidity facility will amortise subject to the floor. EXPECTED 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. Analysis of the foreclosure scenarios found that the expected ratings of the class A and AB were not affected under Fitch's moderate or severe foreclosure stress (15% and 30% increase) scenarios. The analysis of the recovery scenarios found that the expected ratings of the class A and AB notes were not affected under Fitch's moderate recovery (15% decrease) scenario and the Class A notes were not affected under Fitch's severe recovery (30% decrease) scenario. The expected ratings of the AB notes were affected under the sever scenario, decreasing to 'AA(EXP)sf'. The analysis of Fitch's moderate combination stress of 15% increase in foreclosures and 15% decrease in recoveries found that the expected ratings of the class A notes were unaffected, while the expected ratings of the class AB notes decreased to 'AA+(EXP)sf'. The class A notes were also unaffected under Fitch's severe combination stress of 30% increase in foreclosures and 30% decrease in recoveries, while the expected ratings of the class AB notes decreased to 'A+(EXP)sf''. The transaction structure supports an LMI-independent rating for the class A notes; therefore, LMI is not required to support the rating due to the level of credit support provided by the lower notes. The rating of the class B notes can withstand a two-notch rating downgrade to the LMI providers 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 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 IMB'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. Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available to Fitch. 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 expected rating sensitivities are further discussed in the corresponding presale report entitled "Illawarra Series 2017-1 RMBS Trust", published today. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by IMB as at 25 April 2017 Transaction documentation provided by Clayton Utz, 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 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 Chris Stankovski Director +612 8256 0341 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst David Carroll Director +612 8256 0333 Committee Chairperson Natasha Vojvodic Senior Director +612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 27 Apr 2017) here Global Criteria for Lenders’ Mortgage Insurance in RMBS (pub. 28 Jul 2016) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 20 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 20 Mar 2017) here Related Research Illawarra Series 2017-1 RMBS Trust - Appendix here Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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