RPT-Fitch Assigns Final Ratings to Illawarra Series IS Trust
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April 8 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned final ratings to Illawarra Series IS Trust's residential mortgage-backed floating-rate notes. The issuance consists of notes backed by first-ranking prime Australian residential mortgages originated by IMB Limited (IMB). The transaction is an internal securitisation.
The ratings are as follows:
AUD441.0m Class A notes: 'AAAsf'; Outlook Stable; and
AUD59.0m Class B notes: Not Rated.
The notes are issued by BNY Trust Company of Australia Limited in its capacity as trustee of Illawarra Series IS Trust.
At the cut-off date, the collateral pool consisted of 1,893 loans totaling approximately AUD500m. The weighted average indexed current loan-to-value ratio was 75.9%, with a weighted average seasoning of 38 months. The pool is composed of 100% fully verified documentation loans, with investment loans accounting for 21.1%. First-time borrowers represent 27.8% of the pool.
KEY RATING DRIVERS
The 'AAAsf' Long-Term Rating assigned to the Class A notes is based on: the quality of the collateral; the 11.8% credit enhancement (CE) provided to the Class A notes by the subordinate Class B notes; and a liquidity facility of 1.3%. The rating also reflects IMB's underwriting standards and servicing capabilities.
The transaction includes a 10-year substitution period. Various eligibility criteria and pool parameters are in place to ensure that during the substitution period the process maintains a stable credit profile.
Liquidity support is provided by excess spread, principal draws, and a liquidity facility sized at 1.3% of the mortgage pool, which will amortise.
The pool benefits from lenders' mortgage insurance (LMI), with policies provided by Genworth Financial Mortgages Insurance Pty Limited (58.2%), QBE Lenders' Mortgage Insurance Limited (8.4%, Insurer Financial Strength Rating: AA-/Stable), and Housing Loans Insurance Corporation (0.02%).
IMB is a mutual financial institution serving more than 178,000 members throughout Australia. IMB is the originator and servicer of the Illawarra programme. The arrears level of securitised Illawarra transactions has tracked below Fitch's Dinkum Index for prime RMBS of 1.21% in 4Q13.
Unexpected decreases in the value of residential property, increases in the frequency of foreclosures, or loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, resulting in potential negative rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to Illawarra Series IS Trust to increased defaults and reduced recovery rates over the life of the transaction. Its analysis found that all rated notes displayed relatively little sensitivity to either increased defaults or reduced recovery rates. However, the transaction shows greater sensitivity to a combination of both increased defaults and decreased recovery rates with the Class A notes' ratings experiencing greater downgrade potential.
Available on www.fitchratings.com or by clicking on the above link is a report entitled "Illawarra Series IS Trust Representations and Warranties", which includes a description of the representations, warranties, and enforcement mechanisms within the transaction.
Link to Fitch Ratings' Report: Illawarra Series IS Trust - Appendix