Fitch Affirms Westpac New Zealand's Mortgage Covered Bonds 'AAA'; Outlook Stable

Thu May 22, 2014 1:23am EDT

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(The following statement was released by the rating agency) SYDNEY, May 22 (Fitch) Fitch Ratings has affirmed Westpac New Zealand Limited's (WNZL, AA-/Stable/F1+) NZD2.2bn of outstanding mortgage covered bonds at 'AAA'. The outlook is Stable. The covered bonds are issued through Westpac Securities NZ Limited (WSNZL), a guaranteed issuing vehicle used for international funding by WNZL. KEY RATING DRIVERS The rating is based on: WNZL's Long-Term Issuer Default Rating (IDR) of 'AA-'; the unchanged Discontinuity Cap (D-Cap) of 2; and the asset percentage (AP) used in the asset coverage test (ACT) of 83.7%. The Outlook on the covered bonds' ratings is Stable, which reflects the Stable Outlook on WNZL's IDR. Fitch's 'AAA' breakeven AP has increased to 86.5% from 86%, driven by lower refinancing spread assumptions for New Zealand which were updated September 2013. In its analysis, Fitch takes into account the AP of 83.7% used in WNZL's ACT, due to excess overcollateralization being funded via the demand loan which ranks senior in repayment to covered bondholders. The cover pool credit quality has remained relatively stable over the past 12 months. Fitch calculated 'AAA' credit loss is 4%, driven by the application of a minimum credit loss at 'AAA'. As of 30 April 2014, the cover pool consisted of 36,098 loans secured by first-ranking mortgages of New Zealand residential properties with a total outstanding balance of NZD4.403bn plus NZD97m of cash. The unchanged D-Cap of 2 reflects Fitch's weak link assessment of liquidity gap and systemic risk. This is driven by the agency's view of the liquidity gap mitigates, in the form of a three-month interest reserve fund and the pre-maturity test for the issued hard bullet bonds. The 83.7% AP Fitch relies on, supports a 'AA+' rating on the covered bonds on a probability of default basis and is sufficient to achieve recoveries in excess of 51% should the covered bonds default, supporting a one-notch uplift to 'AAA'. RATING SENSITVITIES The 'AAA' rating would be vulnerable to a downgrade if any of the following occur: (i) WNZL's IDR is downgraded by two notches to 'A'; or (ii) the D-Cap falls by two categories to 0 (full discontinuity); or (iii) the asset percentage (AP) that Fitch takes into account in its analysis increases above Fitch's 'AAA' breakeven AP of 86.5%. The Fitch 'AAA' breakeven AP for the covered bond rating 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 issuance. Therefore the 'AAA' breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time. More details on the portfolio and Fitch's analysis will be available soon in a full rating report, at www.fitchratings.com. 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 The source of information used to assess these ratings was Westpac New Zealand Limited. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public. Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0325, Email: Leni.Vu@fitchratings.com. Additional information is available at www.fitchratings.com Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 March 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds ', dated 13 May 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2014; 'APAC Residential Mortgage Criteria', dated 1 August 2013; 'APAC Residential Mortgage Criteria Addendum - New Zealand', dated 1 August 2013; 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum' dated 4 February 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here APAC Residential Mortgage Criteria - Amended here APAC Residential Mortgage Criteria Addendum – New Zealand - Amended here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum 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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