TEXT-Fitch affirms ANZ's covered bonds at 'AAA'; outlook stable
(The following statement was released by the rating agency)
Nov 21 - Fitch Ratings has affirmed Australia & New Zealand Banking Group's (ANZ, 'AA-'/Stable/'F1+') residential mortgage covered bonds at 'AAA' with a Stable Outlook.
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 86.0%, which is below Fitch's breakeven AP of 86.8% for a 'AAA' rating.
In terms of sensitivity of the covered bonds' rating, the 'AAA' rating would be vulnerable to downgrade if the IDR is downgraded by two or more notches; the D-Cap falls by more than one category; or the programme's AP rises above 86.8%.
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. Cover-pool specific alternative management is assessed as low and asset segregation as very low risk in terms 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 1 October 2012, the cover pool consisted of 42,660 loans secured by first ranking mortgages of Australian residential properties with a total outstanding balance of AUD11.9bn. The portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 63.8%, and a weighted average seasoning of 16.9 months. Floating-rate loans represent 93.3% of the cover pool.
In a 'AAA' scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 9.0%, and a weighted average recovery rate of 53.1%. The cover pool is geographically distributed across Australia's states, with the largest concentrations being in New South Wales/ Australian Capital Territory (28.5%), Victoria (33.7%), and Queensland (15.5%). 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 for 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.
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