• Sun. Aug 7th, 2022

Fitch upgrades 2, asserts 3 classes in 2 Auswide transactions; Removed from UCO

ByElla E. Kidwell

Jul 5, 2022

Fitch Ratings upgraded two and confirmed three rating categories of two Auswide transactions.

The operations – ABA Trust 2017-1 and World Bank Trust 2014-1 – consist of notes backed by fully documented Australian residential first mortgage pools issued by Auswide Bank SA (BBB+/Stable). The ratings were issued by Perpetual Business Trust Limited in his capacity as trustee.

Following the release of the updated APAC Residential Mortgage Rating Criteria on June 2, 2022Class B and C tickets from BM 2014-1 were placed under observation under criteria (UCO) on June 6, 2022. Class B and C rating upgrades and their removal from the UCO are primarily driven by Fitch’s application of the updated criteria, namely the reduction of the Large Debtor Concentration Test, which previously limited ratings marks.

RATING ACTIONS

Entity / Debt

Evaluation

Prior

World Bank Trust 2014-1

A AU3FN0025151

LT

AAAsf

asserted

AAAsf

AB AU3FN0025169

LT

AAAsf

asserted

AAAsf

B AU3FN0025177

LT

AAAsf

Upgrade

AA+pc

CAU3FN0025185

LT

AAAsf

Upgrade

AA-sf

ABA Trust 2017-1

A AU3FN0036745

LT

AAAsf

asserted

AAAsf

Page

from 1

SEE ADDITIONAL ASSESSMENT DETAILS

KEY SCORING FACTORS

Resilient asset performance: Trades over 30 days and over 90 days past due were in line with or below Fitch’s 1Q21 RMBS Dinkum Index at end of May 2022. BM The 2014-1 30+ day arrears trailed the 1Q22 RMBS Dinkum Index by 0.92%, while the 2017-1 ABA was below 0.25%. Both transactions have no arrears of more than 90 days, below the index’s 0.52%. Arrears figures exclude distressed loans that are not in arrears. Losses on all transactions remained low, with all losses fully covered by Lenders Mortgage Insurance (LMI) or excess margin.

The weighted average frequency of seizures (WAFF) “AAAsf” for BM 2014-1 is 9.4%, thanks to the weighted average (WA) of the unindexed loan-to-value (LVR) ratio of 48.1%. The LMI dependent WA ‘AAAsf’ recovery rate (WARR) of 73.9% is driven by the scheduled WA indexed LVR of the portfolio of 43.5% and 100% of the pool benefiting from the LMI. Updated asset and cash flow models have not been rerun for ABA 2017-1, in accordance with Fitch’s APAC Residential Mortgage Rating Criteria.

Credit enhancement supports ratings: All notes rated “AAAsf” have a subordination of at least 2.4x the “AAAsf” portfolio loss of the last model run. Both transactions are refunded on a pro rata basis and will revert to sequential payment if performance deteriorates or transactions reach the cleanup call date.

Structural features include liquidity buffers valued at 1% of asset balances with a floor of AUD 300,000 and World Bank Trust currently has an overcollateralization reserve ledger of AUD 1.2 million, which provides credit support for rated notes.

Low operational risk: Auswide is an authorized depository institution headquartered in Bundaberg, queensland. Fitch undertook an operational review and found that the servicing agent’s operations were comparable to those of other Australian compliant lenders and that there were no material changes that would affect the ongoing capability of the servicing agent undertake administration and collection activities.

The economic rebound supports the outlook: the stable outlook is supported by australia recovery in progress. We expect the country’s strong labor market and GDP growth to support trading performance, despite our forecast that interest rates will reach 1.85% and inflation 5.5% by the end of the year. We forecast GDP growth of 4.0% in 2022, with an unemployment rate of 3.9%. GDP growth and inflation are expected to normalize to 2.5% and 2.1%, respectively, in 2023, with an unemployment rate of 4.0%, while we expect interest rates to reach 2 .50%.

Loans in transactions are concentrated in queensland (AA+/Stable), reflecting Auswide Bank’s operational concentration in the region. Fitch expects the state’s economy to continue to recover from the effects of the Covid-19 pandemic. The rating on queensland reflects the diversity and underlying strength of the local economy.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to a negative rating action/downgrade:

The performance of the operation may be affected by changes in market conditions and the economic environment. Weakening asset performance is strongly correlated with increasing levels of delinquencies and defaults which could reduce the credit enhancement available for the Notes.

Downshift Sensitivity

Unexpected increases in default frequency and loss severity on defaulted receivables could produce loss levels above Fitch’s baseline scenario and will likely result in lower credit enhancement and remaining loss coverage levels available for tickets. The decline in credit enhancement may render certain Note Ratings subject to negative rating action, depending on the extent of the decline in coverage. Accordingly, Fitch performs sensitivity analysis focusing on the initial baseline assumptions of a transaction.

The rating sensitivity section provides an overview of the model’s implied sensitivities that the transaction faces when the assumptions – WAFF or WARR – are changed, while holding the others equal. The modeling process uses changing default and loss assumptions to reflect the performance of assets in bullish and bearish environments. The results should only be viewed as a potential outcome as the trade is exposed to multiple dynamic risk factors.

Fitch’s previous rating sensitivities for ABA 2017-1 were discussed in “Fitch Assigns Final Ratings to ABA Trust 2017-1′, published on June 28, 2017.

Downshift Sensitivity (World Bank Trust 2014-1)

Note: A/AB/B/C

Classification: AAAsf / AAAsf / AAAsf / AAAsf

Increase default values ​​by 15%: AAAsf / AAAsf / AAAsf / AAAsf

Increase default values ​​by 30%: AAAsf / AAAsf / AAAsf / AAAsf

Reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AAAsf

Reduce recoveries by 30%: AAAsf / AAAsf / AAAsf / AAAsf

Increase defaults by 15% and reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AAAsf

Increase defects by 30% and reduce recoveries by 30%: AAAsf / AAAsf / AA+sf / AA+sf

Transaction structure supports LMI-independent notations for class A, A-B and B ratings. LMI is not obligated to support the ratings due to the level of credit support provided by the lower ratings.

Class C ratings can withstand a two-notch downgrade from LMI’s vendor ratings.

Factors that could, individually or collectively, lead to positive rating action/improvement:

Ratings are at ‘AAAsf’, which is the highest level on the Fitch scale. Grades cannot be upgraded.

Best/Worst Case Evaluation Scenario

Global credit ratings of structured finance transactions have a best-case upgrade scenario (defined as the 99th percentile of rating transitions, measured in the 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 negatively) of seven notches over three years. The full range of best-case and worst-case credit ratings for all rating categories ranges from “AAAsf” to “Dsf”. Worst case and worst case credit ratings are based on historical performance. For more information on the methodology used to determine industry-specific best-case and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD-PARTY DUE DILIGENCE IN ACCORDANCE WITH SEC 17G -10

ABS Due Diligence Form-15E was not provided to, or reviewed by, Fitch in connection with the rating action on the two transactions.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information received on the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of asset portfolio information as part of its ongoing monitoring.

Prior to the closing of the transaction, Fitch sought to receive a third-party valuation performed on the asset portfolio information, but none was made available to Fitch for these transactions.

Prior to the closing of the transaction, Fitch performed a review of a small, targeted sample of the Offeror’s original records and found that the information contained in the files reviewed was sufficiently consistent with the Offeror’s policies and practices. and other information provided to the agency about the asset. wallet.

Taken as a whole, and with all the assumptions mentioned above, Fitch’s assessment of the information on which the agency’s rating analysis is based according to its applicable rating methodologies indicates that it is sufficiently reliable.

REFERENCES FOR A MOSTLY MATERIAL SOURCE CITED AS A KEY SCORING FACTOR

The main sources of information used in the analysis are described in the applicable criteria.

The issuer has informed Fitch that all relevant underlying information used in the analysis of the rated obligations is not public.

ESG considerations

Unless otherwise specified in this section, the highest level of ESG Credit materiality is a score of “3”. This means that ESG issues are credit-neutral or have minimal impact on the entity’s credit, either because of their nature or the way they are managed by the entity. For more information on Fitch’s ESG materiality scores, visit www.fitchratings.com/esg

Additional information is available at www.fitchratings.com