Fitch Ratings has affirmed seven classes of notes from three Auswide transactions.
The transactions consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans. All mortgages were originated by
The social and market disruption caused by the coronavirus pandemic and the related containment measures do not negatively affect the transactions' ratings, which are sufficiently supported by credit enhancement and adequate liquidity under Fitch's base-case scenario of the pandemic.
The Stable Outlook is based on the notes' liquidity support and ability to withstand the sensitivity to higher defaults stemming from the pandemic.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
A AU3FN0036745
LT AAAsf Affirmed AAAsf
A-2 AU3FN0012365
LT AAAsf Affirmed AAAsf
AB AU3FN0012373
LT AAAsf Affirmed AAAsf
A AU3FN0025151
LT AAAsf Affirmed AAAsf
AB AU3FN0025169
LT AAAsf Affirmed AAAsf
B AU3FN0025177
LT A+sf Affirmed A+sf
C AU3FN0025185
LT BBBsf Affirmed BBBsf
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Pandemic-Related Economic Shock: Fitch has made assumptions about the spread of the coronavirus and the economic impact of containment measures. In a base-case (most likely) scenario, Fitch assumes economic activity will jump in 3Q20, to be followed by a slower recovery trajectory from 4Q20 amid high unemployment and a further pullback in private-sector investment.
In a downside (sensitivity) scenario, Fitch assesses a more severe and prolonged period of stress, with recovery to pre-crisis GDP levels delayed until around the middle of the decade.
Coronavirus-Related Impact: The measures put in place to limit the spread of the virus are affecting
Commentary describing Fitch's credit views and analytical approach as a consequence of the coronavirus is available in the following reports:
'Global Economic Outlook:
(www.fitchratings.com/site/re/10135033), published on
'Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update'
(www.fitchratings.com/site/re/10135320), published on
'Global SF Rating Assumptions Updated to Reflect Coronavirus Risk'
(www.fitchratings.com/site/pr/10117224), published on
Analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the following commentary:
'Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS'
(www.fitchratings.com/site/pr/10120792), published on
'Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects'
(www.fitchratings.com/site/pr/10130287), published on
Liquidity Risk from Payment Holidays: We have reviewed the ability of the transactions to survive a significant proportion of borrowers taking up payment holidays. The transactions benefit from a liquidity reserve ranging from 1.0%-2.9% of asset or note balances and can withstand 100% of the pools being granted a payment holiday for more than six months, to cover required payments at the current bank-bill swap rate, which is well above the proportion of mortgages on COVID-19 hardship arrangements as of end-August.
Operational Risk: Auswide is an authorised deposit-taking institution headquartered in Bundaberg,
Asset Analysis: The asset model has not been run for
The asset model was re-run for
The
Liability Analysis: Cash flow analysis was not performed for all trusts, in accordance with Fitch's criteria, as the notes are rated at the highest possible level (AAAsf or non-model related cap). Cash-flow distributions have been within Fitch's expectations since the last cash-flow model analysis and there have been no material changes to cash-flow assumptions.
Macroeconomic Factors: Fitch expects near-term mortgage performance to deteriorate, but to continue to support the Stable Outlook on the notes. We forecast
All transactions have significant concentrations of loans in
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.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The notes are rated at 'AAAsf', which is the highest level on Fitch's scale. The ratings cannot be upgraded.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A longer pandemic than Fitch expects that leads to deterioration in macroeconomic fundamentals and consumers' financial position in
The transactions' structure support LMI-independent ratings. LMI is not required to support the ratings due to the level of credit support provided by the lower notes.
Coronavirus Downside Scenario Sensitivity
Under Fitch's downside scenario, re-emergence of infections in the major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets. Available subordination for the rated notes is expected to mitigate the sensitivity to potential negative movements in defaults due to the coronavirus pandemic.
For more information on rating sensitivities, please refer to the new issue report for
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The class A and AB notes are rated at 'AAAsf', which is the highest level on Fitch's scale. The ratings cannot be upgraded. Upgrades to class B and C notes are constrained by tail risk concentration.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A longer pandemic than Fitch expects that leads to deterioration in macroeconomic fundamentals and consumers' financial position in
Class: A / AB / B / C
Current Ratings: AAAsf / AAAsf / A+sf / BBBsf
Increase defaults by 15%: AAAsf / AAAsf / A+sf / BBBsf
Increase defaults by 30%: AAAsf / AAAsf / A+sf / BBBsf
Decrease recoveries by 15%: AAAsf / AAAsf / A+sf / BBBsf
Decrease recoveries by 30%: AAAsf / AAAsf / A+sf / BBBsf
Increase defaults by 15%; decrease recoveries by 15%: AAAsf / AAAsf / A+sf / BBBsf
Increase defaults by 30%; decrease recoveries by 30%: AAAsf / AAAsf / A+sf / BBBsf
The transaction structures support LMI-independent ratings for class A notes. LMI is not required to support the ratings due to the level of credit support provided by the lower notes. The class AB, B and C notes' ratings are dependent on LMI.
Coronavirus Downside Scenario Sensitivity
Under Fitch's downside scenario, re-emergence of infections in the major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets. Fitch tested this scenario by increasing defaults by 15% and decreasing recoveries by 15% across all rating levels.
The impact on note ratings due to the coronavirus downside scenario: AAAsf / AAAsf / A+sf / BBBsf
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
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.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolios as part of its ongoing monitoring.
Fitch did not review the information provided about the underlying asset pool ahead of
Prior to
Prior to ABA 2017-1 transaction closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was available for this transaction.
As part of its ongoing monitoring, Fitch reviewed a small targeted sample of Auswide'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 portfolios.
Overall, Fitch's assessment of the information on the asset pools relied upon for the agency's rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
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