TEXT-Fitch Rates ASB Bank's 2012-3 Covered Bonds 'AAA'
(The following was released by the rating agency)
SYDNEY, July 11 (Fitch) Fitch Ratings has assigned ASB Bank Limited's (ASB, 'AA-'/Stable/'F1+') Series 2012-3 EUR500m 5 year mortgage covered bonds a 'AAA' rating. The hard bullet bonds are due in July 2017 and are issued by ASB Finance Limited, acting through its London Branch, and guaranteed by ASB.
The ratings are based on ASB's Long-Term Issuer Default Rating (IDR) of 'AA-' and a Discontinuity Factor (D-Factor) of 29.9%, the combination of which enables the covered bonds to reach a 'AA+' rating on a probability of default basis, and a rating of 'AAA' after factoring in a rating uplift from cover pool recoveries, which have been modelled in a 'AAA' rating scenario. The rating also takes into account its asset coverage test, and reflects sufficient credit enhancement to sustain 'AAA' stress scenarios applied by Fitch. All else being equal, the rating of ASB's residential mortgage covered bonds could still be maintained at 'AAA' were the issuer rated at least 'A'.
Fitch's supporting current asset percentage (AP) is 83.3%, equivalent to a 20.0% overcollateralisation. Supporting AP for a given rating will be affected by, among others, the current profile of cover assets relative to the outstanding covered bonds which, even in the absence of further issuance, can change over time. It cannot be assumed that a given AP supporting the rating will remain stable over time.
Fitch's D-Factor measures the likelihood of interruption of payments on the covered bonds at the time of a default by their issuer, on a scale between 0%-100%, with 0% reflecting perfect continuity and 100% being equivalent to a simultaneous default of the issuer and its covered bonds. The D-Factor assigned to ASB's covered bonds reflects the strength of the asset segregation through a bankruptcy remote SPV, which acts as guarantor of the covered bonds. It also reflects the mitigant to liquidity gap risk in the form of a pre-maturity test, triggering the cash collateralisation of payments due over the next 12 months, upon a downgrade of the issuer to below 'F1+', or for future soft bullet issues, a 12-month maturity extension. It also reflects Fitch's expectations that the cover assets can be transitioned to an alternative manager in case of need, as well as the lack of a covered bond regulatory regime in New Zealand.
As of 30 April 2012, the cover pool consisted of 22,685 loans secured by first-ranking mortgages over New Zealand residential properties with a total outstanding balance of NZD3.262bn. The portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 48.3%, and a weighted average seasoning of 43.5 months. Fixed-rate loans represent 45.5% of the cover pool. In a 'AAA' rating scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 10.9%, and a weighted average recovery rate of 52.2%. The cover pool is geographically distributed across New Zealand, with the largest concentrations being in Auckland (65.6%) and Wellington (8.8%). The agency's mortgage default analysis is based on the Australian mortgage default model criteria, updated with a New Zealand-specific default probability, market value declines, and other risk adjustments that relate to the New Zealand mortgage market.
Fitch has formed assumptions about the default probability and losses of the cover pools under a 'AAA' stress scenario, and tested maturity mismatches between the cover pools and possible covered bond issuance in a wind-down scenario under the management of a third party.
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