Fitch Rates Westpac's Series 2013-C2 Covered Bonds 'AAA'

Wed Apr 17, 2013 10:01pm EDT

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(The following statement was released by the rating agency) SYDNEY, April 17 (Fitch) Fitch Ratings has assigned Westpac Banking Corporation's (WBC, 'AA-'/Stable/'F1+') Series 2013-C2 issue of EUR1.0bn mortgage covered bonds a 'AAA' rating with a Stable Outlook. The fixed rate bond is due in April 2020 and benefits from a 12-month extendable maturity. RATING DRIVERS The rating is based on WBC's Long-Term Issuer Default Rating (IDR) of 'AA-', a Discontinuity Cap (D-Cap) of 2 (high) and an asset percentage (AP) of 86.3%, which is equivalent to Fitch's breakeven AP for a 'AAA' rating, supporting a 'AA' rating on a probability of default (PD) basis and a 'AAA' rating after giving credit for recoveries. The Outlook on the covered bonds reflects the Stable Outlook on WBC's IDR. The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by a weak pre-maturity test that allows for a mandatory six-month asset sale period prior to a scheduled hard bullet covered bond maturity, whereas Fitch has assessed the time required to sell cover pool assets in Australia to be at least 12 months. The D-Cap of 2, when combined with the institution's IDR and recovery uplift, continues to support a 'AAA' rating on the covered bonds. As of end-February 2013, the cover pool consisted of 75,118 loans secured by first-ranking mortgages of Australian residential properties with a total outstanding balance of AUD18.9bn. The portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 64.2%, and a weighted average seasoning of 45 months. Floating rate loans comprise 81.6% and fixed rate loans 18.4% of the cover pool by balance. The mortgage portfolio is geographically distributed across Australia's states, with the largest concentrations being in New South Wales (38.8%) and Victoria (27.4%). In a 'AAA' scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 9.4%, and a weighted average recovery rate of 55.5%. The agency's mortgage default analysis is based on its Australian residential mortgage criteria. Maturity mismatches are significant, with the weighted-average residual life of the assets at 16.8 years and of the liabilities at 4.3 years. RATING SENSITIVITY The 'AAA' rating would be vulnerable to a downgrade if the issuer's Long-Term IDR is downgraded by two or more notches; if the D-Cap falls by more than one category; or if the programme's AP rises above the breakeven AP of 86.3%. Contacts: Primary Analyst Claire Heaton Director +61 2 8256 0361 Fitch Australia Pty Ltd. Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst James Leung Director +61 2 8256 0322 Committee Chairperson Natasha Vojvodic Senior Director +61 2 8256 0350 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. The source of information used to assess these ratings was Westpac Banking Corporation. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public. Additional information is available at www.fitchratings.com Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 September 2012; 'Covered Bonds Counterparty Criteria', dated 25 July 2012; and 'APAC Residential Mortgage Criteria', dated 3 August 2012; 'APAC Residential Mortgage Criteria Addendum - Australia', dated 3 August 2012; 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum' dated 14 November 2012; 'Global Criteria for Lender's Mortgage Insurance in RMBS', dated 7 September 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research Covered Bonds Rating Criteria - Amended here Covered Bonds Counterparty Criteria here APAC Residential Mortgage Criteria here APAC Residential Mortgage Criteria Addendum — Australia here Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum here Global Criteria for Lenders’ Mortgage Insurance in RMBS here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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