RPT-Fitch affirms 2 ABS and 2 RMBS REDS Trust Series transactions

Wed Mar 19, 2014 4:23am EDT

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March 19 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the ratings of Series 2012-1E REDS EHP Trust and Series 2013-1 REDS EHP Trust. The transactions are securitisations of first-ranking small balance auto and equipment loans originated by Bank of Queensland Equipment Finance Ltd. Fitch has also affirmed the ratings of Series 2012-1E REDS Trust and Series 2013-1 REDS Trust. These transactions are securitisations of first-ranking Australian residential mortgages originated by Bank of Queensland (BoQ, BBB+/Positive/F2).A full list of rating actions can be found at the end of this commentary.

KEY RATING DRIVERS

The rating actions reflect Fitch's view that credit enhancement levels are able to support the notes' current ratings. The credit quality and performance of the loans in the respective collateral pools remain in line with the agency's expectations. The rating actions reflect Fitch's view that, in line with expectations of Australia's economic conditions, available credit enhancement is sufficient to support the notes' current ratings.

Principal is being allocated pro-rata since April 2013 as step-down test conditions have been satisfied for the Series 2012-1E REDS EHP transaction. In the case of Series 2012-1E REDS, principal collections are being allocated to the repayment of the Class A1 notes, which have benefited from an increase in credit enhancement due to sequential amortisation and seasoning since issuance. Principal will be paid pro-rata as step down conditions were satisfied in January 2014 for Series 2013-1 REDS EHP. The subordination on Series 2013-1 REDS continues to grow from closing as all available principal is being allocated to paying down the Class A1 notes.

As at end-Jan 2014, all transactions have performed in line with Fitch's expectations given the current economic backdrop. 30+ days arrears stand at 0.8% and 0.03% of the underlying auto and equipment loan balances respectively for Series 2012-1E REDS EHP and Series 2013-1 REDS EHP. Cumulative losses stood at AUD3m and AUD2m respectively for Series 2012-1E REDS EHP and Series 2013-1 REDS EHP, which have been recovered through excess spread. The excess spread reserve has reached the maximum balance permitted under the documents, of AUD 2.31m, and will be available to cover any potential future losses for the Series 2012-1E REDS EHP Trust. Series 2013-1 REDS EHP closed in May 2013 and has had a relatively small time period to report arrears and losses. When compared with other similar transactions, arrears and losses over this period have been comparable to the earlier Series 2012-1E REDS EHP, and are below Fitch's ABS Dinkum Index.

In the case of Series 2012-1E REDS and Series 2013-1 REDS, 30+ days arrears stood at 0.81% and 1.2% of the residential portfolio respectively at end-Jan 2014. While there has been one foreclosure to date for both transactions, no realised losses have been incurred by the transactions. All loans in the pool are covered by lenders' mortgage insurance (LMI) provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength rating: AA-/Stable) and Genworth Financial Mortgage Insurance Pty Ltd. Series 2013-1 REDS' excess spread reserve has a balance of AUD3m that can be used as a source of liquidity. At end-Jan 2014 there was no credit balance for the excess spread reserve for Series 2012-1E REDS, and this will remain the case until specific excess spread trap conditions are satisfied. The current weighted average loan-to-value ratio (LVR) stands at 50.1% and 51.6% respectively for Series 2012-1E REDS and Series 2013-1 REDS, while the current indexed LVR stands at 50.8% and 51% respectively.

RATING SENSITIVITIES

Based on transaction performance, the likelihood of a downgrade of the senior note classes is remote. Significant increases in loss severity and foreclosure frequency, well above current break-even credit support levels, would need to occur before any downgrade could be considered.

The sequential pay-down of the transactions has increased the senior notes' credit enhancement, which can withstand multiples of the latest reported arrears. Unlike the Series 2012-1E REDS' Class B notes, which are dependent on the support of the LMI providers, the Class A notes from Series 2012-1E REDS and Series 2013-1 REDS are independent of downgrades to the LMI providers' ratings. Fitch's initial key rating drivers and rating sensitivities are further discussed in the transactions' corresponding New Issue reports listed under "Related Research". Included as an appendix to the reports for Series 2012-1E REDS, Series 2013-1 REDS, Series 2012-1E REDS EHP and Series 2013-1 REDS are a description of the representations, warranties, and enforcement mechanisms. The full list of rating actions is as follows:

Series 2012-1E REDS EHP Trust:

AUD123.4m Class A-2A (ISIN AU0000RFAHA9) affirmed at 'AAAsf'; Outlook Stable;

GBP39.4m Class A-2G (ISIN XS0784745050) affirmed at 'AAAsf'; Outlook Stable;

AUD14.7m Class B (ISIN AU3FN0015558) affirmed at 'AAsf'; Outlook Stable;

AUD11.7m Class C (ISIN AU3FN0015566) affirmed at 'Asf'; Outlook Stable;

AUD11.2m Class D (ISIN AU3FN0015574) affirmed at 'BBBsf'; Outlook Stable; and

AUD10.3m Class E (ISIN AU3FN0015582) affirmed at 'BBsf'; Outlook Stable.

Series 2013-1 REDS EHP Trust:

AUD496.0m Class A (ISIN AU3FN0019097) affirmed at 'AAAsf'; Outlook Stable;

AUD44.2m Class B (ISIN AU3FN0019105) affirmed at 'AAsf'; Outlook Stable;

AUD33.6m Class C (ISIN AU3FN0019113) affirmed at 'Asf'; Outlook Stable;

AUD23.0m Class D (ISIN AU3FN0019121) affirmed at 'BBBsf'; Outlook Stable; and

AUD24.8m Class E (ISIN AU3FN0019139) affirmed at 'BBsf'; Outlook Stable.

Series 2012-1E REDS Trust:

AUD497.9m Class A1 (ISIN AU3FN0017281) affirmed at 'AAAsf'; Outlook Stable;

AUD50.0m Class A2A (ISIN AU3FN0017299) affirmed at 'AAAsf'; Outlook Stable;

GBP100.0m Class A2S (ISIN XS0857670110) affirmed at 'AAAsf'; Outlook Stable;

AUD45.1m Class AB (ISIN AU3FN0017307) affirmed at 'AAAsf'; Outlook Stable; and

AUD20.1m Class B (ISIN AU3FN0017315) affirmed at 'AA-sf'; Outlook Stable.

Series 2013-1 REDS Trust:

AUD534.7m Class A1 (ISIN AU0000RDIHA7) affirmed at 'AAAsf'; Outlook Stable; and

AUD170.0m Class A2 (ISIN AU0000RDIHB5) affirmed at 'AAAsf'; Outlook Stable.

A comparison of the transactions' representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links given under Related Research below.

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