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Fitch rates Kiwibank covered bonds 'AAA(EXP)'
March 7, 2013 / 8:57 AM / 5 years ago

Fitch rates Kiwibank covered bonds 'AAA(EXP)'

March 7 (Reuters) - (The following statement was released by the rating agency) MFitch Ratings has assigned Kiwibank Limited's (Kiwibank, AA/'F1+') inaugural mortgage covered bonds, an expected 'AAA(EXP)' rating. The bonds are guaranteed by Kiwi Covered Bond Trustee Limited as trustee of the Kiwi Covered Bond Trust. Under this programme Kiwibank can periodically ssue covered bonds up to NZD3bn secured on a dynamic pool of first-ranking New Zealand residential mortgage loans. The expected rating is based on Kiwibank's Long-Term Issuer Default Rating (IDR) of 'AA' a Discontinuity Cap (D-Cap) of 2 (high), and the asset percentage (AP) of 88.4% that Fitch takes into account in its analysis. While the contractual AP has not yet been confirmed, Fitch's breakeven AP to maintain the rating of 'AAA(EXP)' is 88.4% on a 'AA' probability of default basis, including recoveries that allow a two-notch uplift to achieve an 'AAA(EXP)' rating. The final rating is contingent on the receipt of information on the initial cover pool and AP confirming to the information already received by Fitch. Rating Sensitivities The 'AAA(EXP)' rating would be vulnerable to a downgrade if the issuer's Long-Term IDR is downgraded by three or more notches or if the AP level Fitch takes into account in its analysis rises above the breakeven point of 88.4%. Rating Drivers The driver of the D-Cap is Fitch's assessment of high liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period, prior to a scheduled covered bond maturity, for cover pool asset sales. This compares with Fitch's assessment of the time required to sell cover pool assets in New Zealand at 12 months. The D-Cap of 2, when combined with Kiwibank's IDR, supports a 'AAA(EXP)' expected rating on the covered bonds. Kiwibank's covered bond programme D-Cap and other component risk assessments are as follows: D-Cap: 2 (high) Asset segregation: very low Liquidity gap and systemic risk: high Cover pool-specific alternative management: low Systemic alternative management: moderate Privileged derivatives: moderate As of 13 January 2013, the proposed cover pool consisted of 2,308 loans secured by first-ranking mortgages of New Zealand residential properties with a total outstanding balance of NZD315.8m. The portfolio is wholly made up of full documentation loans, which have a weighted average current loan-to-value ratio of 58.4%, and a weighted average seasoning of 36.6 months. Floating-rate loans comprise 47.9% of the cover pool. In a 'AAA' scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 7.5%, and a weighted average recovery rate of 54.4%. The cover pool is geographically distributed across New Zealand, with the largest concentrations being in Auckland (38.9%) and Wellington (20.1%). The agency's mortgage default analysis is based on its New Zealand residential mortgage criteria. The Fitch breakeven AP in line with the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore it cannot be assumed to remain stable over time. A pre-sale report on Kiwibank's covered bond programme is available on or by clicking on the link above. CLink to Fitch Ratings' Report: Kiwibank Limited here

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