(The following statement was released by the rating agency)
Sept 13 - Fitch Ratings has assigned Australia & New Zealand Banking Group’s (ANZ, ‘AA-'/Stable/‘F1+') USD1,500m Series 2012-8 and USD750m Series 2012-9 mortgage covered bonds ‘AAA’ ratings. The Outlook is Stable.
The rating is based on ANZ’s Long-term Issuer Default Rating (IDR) of ‘AA-', a Discontinuity Cap (D-Cap) of 2 (high) and an asset percentage (AP) of 82.7%, which is below Fitch’s breakeven AP of 86%.
In terms of sensitivity of the covered bonds’ rating, the ‘AAA’ rating would be vulnerable to downgrade if any of the following occurred: (i) the Long-Term Issuer Default Rating (IDR) was downgraded by two or more notches; (ii) the D-Cap fell by more than one category; (iii) the AP level Fitch takes into account in its analysis goes above the breakeven point of 86%.
Australia & New Zealand Banking Group Limited
Long-Term Issuer Default Rating: ‘AA-', Outlook Stable
Mortgage covered bond rating: ‘AAA’, Outlook Stable
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
The driver of the D-Cap is the high risk assessment for the 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, while Fitch has assessed the time required to sell cover pool assets in Australia as 12 months.
The system-based alternative management and privileged derivatives components are assessed as moderate from a discontinuity point of view. The cover-pool specific alternative management is assessed as low and asset segregation as very low risk of discontinuity in line with all Australian programmes. The D-Cap of 2, when combined with the institution’s IDR and potential recovery uplift, supports a ‘AAA’ rating on the covered bonds.
As of 31 July 2012, the cover pool consisted of 38,127 loans secured by first ranking mortgages of Australian residential properties with a total outstanding balance of AUD10.4bn. The portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 63.4%, and a weighted average seasoning of 15.8 months. Floating-rate loans represent 93.4% of the cover pool. In a ‘AAA’ scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 9.6%, and a weighted average recovery rate of 55.4%. The cover pool is geographically distributed across Australia’s states, with the largest concentrations being in New South Wales/ Australian Capital Territory (28.2%), Victoria (33.9%), and Queensland (15.4%). The agency’s mortgage default analysis is based on its Australian residential mortgage criteria.
The outstanding covered bonds, totalling AUD8.8bn, are guaranteed by Perpetual Corporate Trust Limited as trustee of the ANZ Residential Covered Bond Trust.
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.