Fitch Rates Westpac's Series 2014-C2 EUR1bn Covered Bonds 'AAA'/Stable

Mon Mar 24, 2014 7:35pm EDT

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(The following statement was released by the rating agency) SYDNEY, March 24 (Fitch) Fitch Ratings has assigned Westpac Banking Corporation's (WBC, AA-/Stable/F1+) Series 2014-C2 issue of EUR1bn mortgage covered bonds a rating of 'AAA'. The Outlook is Stable. The fixed-rate bond is due in March 2021 and benefits from a 12-month extendable maturity. KEY 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 89.0%, which is lower than Fitch's breakeven AP for a 'AAA' rating of 89.5%, 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. At end-February 2014, the cover pool consisted of 106,814 loans secured by first-ranking mortgages of Australian residential properties with a total outstanding balance of AUD25.8bn and AUD4.2bn of cash. Maturity mismatches are significant, with the weighted-average residual life of the cover assets at 15.6 years, and of the liabilities at 4.1 years. RATING SENSITIVITIES The 'AAA' rating would be vulnerable to a downgrade if the issuer's Long-Term IDR were downgraded by two or more notches; the D-Cap fell by more than one category; or the programme's AP rose above the breakeven AP of 89.5%. Fitch is in the process of implementing its recently updated covered bonds criteria to reflect the beneficial position for covered bonds under bank resolution frameworks where covered bonds are exempted from bail-in. The course of implementation will take place as described in the report entitled "Feedback Report: Covered Bond Rating Change - Developments in Bank Resolution Frameworks Beneficial", listed below. 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 Ben McCarthy Managing Director +61 2 8256 0388 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. Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 March 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2013; 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2013 ; and 'APAC Residential Mortgage Criteria', dated 1 August 2013; 'APAC Residential Mortgage Criteria Addendum - Australia', dated 1 August 2013; 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum' dated 7 February 2014; 'Global Criteria for Lender's Mortgage Insurance in RMBS', dated 1 August 2013, are available at www.fitchratings.com. Related research: "Feedback Report: Covered Bond Rating Change - Developments in Bank Resolution Frameworks Beneficial", dated 10 March 2014. Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here APAC Residential Mortgage Criteria - Amended here APAC Residential Mortgage Criteria Addendum – Australia - Amended here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum here Global Criteria for Lenders’ Mortgage Insurance in RMBS here Feedback Report: Covered Bond Rating Criteria Change here Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds 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 WEB SITE AT 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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. 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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