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Fitch Assigns Final Ratings to Medallion Trust Series 2016-2
January 10, 2017 / 4:26 AM / a year ago

Fitch Assigns Final Ratings to Medallion Trust Series 2016-2

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Medallion Trust Series 2016-2 here SYDNEY, January 09 (Fitch) Fitch Ratings has assigned final ratings to Medallion Trust Series 2016-2's mortgage-backed floating-rate notes. The issuance consists of notes backed by first-ranking Australian residential mortgages originated by Commonwealth Bank of Australia (CBA, AA-/Stable/F1+). The ratings are as follows: AUD1,840m Class A1a notes: 'AAAsf'; Outlook Stable; AUD0m* Class A1b notes: 'NRsf'; AUD120m Class B notes: 'AAsf'; Outlook Stable; and AUD40m Class C notes: 'NRsf'. *No class A1b notes were issued following the pricing date. The notes have been issued by Perpetual Trustee Company Limited in its capacity as trustee of Medallion Trust Series 2016-2. The total collateral pool, with a balance of AUD2bn, consisted of 7,176 loans at the cut-off date. The average loan balance was AUD278,707. KEY RATING DRIVERS Sufficient Credit Support: The class A1a notes have sufficient credit enhancement (CE) of 8% provided by the class B and C notes, and are independent of credit provided by lenders' mortgage insurance (LMI). The rating of the class B notes relies upon credit support of 2% provided by the subordinated class C notes and LMI. Conservative Pool Characteristics: The portfolio contains loans that have been conservatively underwritten. The weighted-average (WA) seasoning is 32 months, with a WA unindexed loan/value ratio (LVR) of 60.1% and WA indexed LVR of 57.5%. The average obligor current loan size is AUD278,707; investment loans represent 24.7% of the pool by balance and interest-only loans represent 17.7%. Sequential/Pro-Rata Pay-down: Interest is paid sequentially (after expenses) towards the class A1a notes, class B notes and then the class C notes. Reimbursement of losses is paid after the distribution of interest to the class B notes. Interest on the class B notes is subordinated if the stated amount of the class B note is, or ever has been, reduced to zero. Principal will be allocated pro-rata towards the class A1a and B notes, with the class B notes receiving the class C pro-rata share if certain conditions are met. Sufficient Liquidity Support: Liquidity support will be provided via excess spread, principal draws and a liquidity facility sized at 0.75% of the notes' balance with a facility floor of AUD1.5m. The liquidity facility will amortise, subject to the floor, while performance-based triggers are satisfied. Strong Record: CBA has considerable experience in mortgage lending and servicing. The bank originates loans through its nationwide branch network, mobile sales force, online and telephone sales operations and third-party mortgage brokers. Arrears of securitised Medallion transactions have tracked in-line or below Fitch's Dinkum Index for prime RMBS. 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 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 of the ratings by stressing the transaction's initial base-case assumptions. Its analysis found that the class A1a and B notes were not impacted when foreclosure stresses were increased by 15% or 30%. The analysis found that the class A1a notes were not impacted when the recovery rates decreased by 15%. When recoveries decreased 30% the rating on the class B notes reduced to 'A+sf'. Under a combination stress of 15% increase in defaults and 15% decrease in recoveries, the rating on the class A1a notes remained stable at 'AAAsf', but the class B rating reduced to 'AA-sf'. If these combined stresses were further increased to 30%, the rating on the class A1a and B notes would come down to 'AA+sf' and 'BBB+sf', respectively. The transaction structure supports an LMI independent rating for the class A1 notes; therefore, LMI is not required to support the rating due to the level of credit support provided by the lower notes. The class B notes' rating is not sensitive to a downgrade of the LMI provider. 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 Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of CBA'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, 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 "Medallion Trust Series 2016-2", published today. SOURCES OF INFORMATION The information below was used in the analysis: -Loan-by-loan data provided by CBA as at 21 December 2016 -Transaction documentation provided by King & Wood Mallesons, 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 (<a href=""> ). 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 James Leung Director +612 8256 0322 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst Courtney Miller Associate Director +612 8256 0347 Committee Chairperson Natasha Vojvodic Senior Director +612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available at 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 Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017353 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. 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. 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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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