REFILE-Fitch assigns and affirms ANZ NZ's mortgage covered bonds 'AAA'/stable
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Sept 24 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings-Sydney-24 September 2013: Fitch Ratings has assigned ANZ Bank New Zealand Limited's (ANZ NZ, AA-/Stable/F1+) Series 2013-1 issue of EUR500m mortgage covered bonds, due in October 2018 with a 12-month extendable maturity, a rating of 'AAA' with a Stable Outlook. At the same time, Fitch has affirmed the outstanding NZD3.1bn of outstanding mortgage covered bonds at 'AAA' with a Stable Outlook.
The outstanding covered bonds have been issued through ANZ New Zealand (Int'l) Limited (ANZNIL), a guaranteed issuing vehicle used for international funding by ANZ NZ. These covered bonds are then guaranteed by ANZ NZ Covered Bond Trust Limited, a bankruptcy-remote SPV, established under the laws of New Zealand.
KEY RATING DRIVERS
The covered bond rating is based on ANZ NZ's Long-Term Issuer Default Rating (IDR) of 'AA-', a Discontinuity Cap (D-Cap) of 2 (high), and the highest nominal asset percentage (AP) in the last 12 months (64.1%), as ANZ NZ's Short-Term IDR is above 'F3'. This provides ample cushion when compared to the breakeven AP of 81% for the 'AAA' rating. The Stable Outlook on the covered bonds reflects the Stable Outlook on ANZ NZ's IDR.
The D-Cap of 2 is driven by the high risk assessment of liquidity gap and systemic risk. Systemic alternative management, cover pool-specific alternative management, and privileged derivatives have been assessed as moderate risk, whereas asset segregation has been assessed as very low risk, which all remain unchanged. 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.
The high risk assessment for liquidity gap and systemic risk reflects the agency's view of the liquidity gap mitigants. The liquidity mitigants are in the form of a three-month interest reserve fund, the 12 month extension period on the issued soft bullet bonds, and the pre-maturity test for the issued hard bullet bonds. The pre-maturity test drives the risk assessment as it allows for a mandatory six month asset sale period prior to a scheduled hard bullet covered bond maturity, post issuer default. Whereas Fitch has assessed the time required to sell cover pool assets in New Zealand to be 12 months in a stressed market scenario.
The moderate risk assessment for the privileged derivatives is due to the internal asset swap that is in place on the cover pool, which is considered highly material for the programme. The systemic alternative management assessment reflects the significant role to be performed post issuer default by the trustee, who would need to contract other parties to perform important functions. The cover pool-specific alternative management assessment reflects the quality of the IT systems, processes and data delivered to Fitch.
Fitch's 'AAA' breakeven AP level of 81% supports a 'AA' rating on a PD basis and allows for a two-notch recovery uplift for the covered bonds in a 'AAA' scenario. The breakeven AP has decreased from 83.9% due to updated NZ stress assumptions, which has a negative impact on the stressed asset price in Fitch's cash-flows model. The Fitch 'AAA' breakeven AP for the covered bonds 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 issuances. Therefore it cannot be assumed to remain stable over time. As of August 2013, the cover pool consisted of 39,344 loans secured by first-ranking mortgages of New Zealand residential properties with a total outstanding balance of NZD5.8bn. The portfolio is wholly made up of full documentation loans which have a weighted average (WA) current loan-to-value ratio of 56.1%, a WA indexed LVR of 53.8%, and a weighted average seasoning of 28 months. Fitch has separately calculated the WA current LVR as 63.1% and the indexed LVR as 60.9%, based on consolidated borrower exposure, both of which are used in its analysis. The cover pool is comprised of: floating-rate loans 37.3%; fixed-rate loans 62.7%; and interest only loans 9.4%. The cover pool is geographically distributed around New Zealand's population centres, with the largest concentrations being in Auckland (43%), Canterbury (centred on Christchurch, 10.5%), and Wellington (14.5%).
In a 'AAA' scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 17.8%, and a weighted average recovery rate of 63.4%. The agency's mortgage default analysis is based on its New Zealand residential mortgage criteria.
Maturity mismatches are significant, with the weighted-average residual life of the assets at 12.7 years, and of the liabilities at 3.9 years.
KEY RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to a downgrade if: the issuer's Long-Term IDR is downgraded by two or more notches; the D-Cap falls by more than two categories; or the AP that Fitch takes into account in its analysis increased above Fitch's 'AAA' breakeven AP of 81%.