Fitch rates National Australia Bank's covered bonds 'AAA'

March 11 Mon Mar 11, 2013 2:59am EDT

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March 11 (Reuters) - (The following statement was released by the rating agency) SYDNEY, March 11 (Fitch) Fitch Ratings has assigned National Australia Bank's (NAB, 'AA-'/Stable/'F1+') Series 12 USD1.75bn March 2018 mortgage covered bonds 'AAA' ratings with a Stable Outlook. This issue brings NAB's outstanding covered bonds to AUD9.4bn. All bonds are guaranteed by Perpetual Corporate Trust as trustee of the NAB Covered Bond Trust. The rating is based on NAB's Long-Term Issuer Default Rating (IDR) of 'AA-', a Discontinuity Cap (D-Cap) of 3 (moderate high) and an asset percentage (AP) of 87%, which is equivalent to Fitch's breakeven AP for a 'AAA' rating. Rating Sensitivity The 'AAA' rating would be vulnerable to a downgrade if the issuer's Long-Term IDR is downgraded by three or more notches; if the D-Cap falls by more than two categories; or if the programme's AP rises above the breakeven point of 87%. Rating Drivers The driver of the D-Cap is the moderate high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a 12-month period prior to a scheduled covered bond maturity for cover pool asset sales. This provision is equivalent to Fitch's assessment of the time required to sell cover pool assets in Australia at 12 months. The D-Cap of 3, when combined with the institution's IDR and recovery uplift, continues to support a 'AAA' rating on the covered bonds. As of 22 February 2013, the cover pool consisted of 39,603 loans secured by first-ranking mortgages of Australian residential properties with a total outstanding balance of AUD10.5bn. The portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 63.6%, and a weighted average seasoning of 34 months. Floating-rate loans comprise 91.7% of the cover pool. The mortgage portfolio is geographically distributed across Australia's states, with the largest concentrations being in New South Wales (36.8%) and Victoria (31.5%). In a 'AAA' scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 8.4%, and a weighted average recovery rate of 58.2%. The agency's mortgage default analysis is based on its Australian residential mortgage criteria. 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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