(The following was released by the rating agency)
SYDNEY, February 04 (Fitch) Fitch Ratings has assigned Australia & New Zealand Banking Group’s (ANZ, ‘AA-'/Stable/‘F1+') GBP500m Series 2013-1 mortgage covered bonds ‘AAA’ ratings with a Stable Outlook.
The rating is based on ANZ’s Long-Term Issuer Default Rating (IDR) of ‘AA-', a Discontinuity Cap (D-Cap) of 2 (high) and an asset percentage (AP) of 86%, which is below Fitch’s breakeven AP of 87.3%.
This issue brings ANZ’s outstanding covered bonds to AUD9.5bn. All bonds are guaranteed by Perpetual Corporate Trust Limited as trustee of the ANZ Residential Covered Bond Trust.
Sensitivity / Rating Drivers
The ‘AAA’ rating would be vulnerable to a downgrade if the issuer’s Long-Term IDR is downgraded by two or more notches; if the D-Cap falls by more than one category; or if the AP level Fitch takes into account in its analysis rises above the breakeven point of 87.3%.
The driver of the D-Cap is Fitch’s assessment of high liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period, prior to a scheduled covered bond maturity, for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in Australia as 12 months. The D-Cap of 2, when combined with ANZ’s IDR and recovery uplift, supports a ‘AAA’ rating on the covered bonds.
As of 31 December 2012, the cover pool consisted of 46,151 loans secured by first ranking mortgages of Australian residential properties with a total outstanding balance of AUD13bn. The portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 64.1%, and a weighted average seasoning of 18.1 months. Floating-rate loans represent 92.8% of the cover pool. In a ‘AAA’ scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 9%, and a weighted average recovery rate of 46.9%. The cover pool is geographically distributed across Australia’s states, with the largest concentrations being in New South Wales/ Australian Capital Territory (28.9%), Victoria (33.6%), and Queensland (15.3%). The agency’s mortgage default analysis is based on its Australian residential mortgage criteria.
The breakeven AP supports a ‘AA+’ rating on a probability of default basis and an uplift to ‘AAA’ based on stressed recoveries of at least 91% on the underlying collateral. The breakeven AP for the 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 it cannot be assumed to remain stable over time.