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Correction: Fitch Assigns Expected Ratings to AFG 2017-1 Trust Series 2017-1
September 1, 2017 / 8:17 AM / 3 months ago

Correction: Fitch Assigns Expected Ratings to AFG 2017-1 Trust Series 2017-1

(The following statement was released by the rating agency) SYDNEY, September 01 (Fitch) This announcement replaces the version published on 20 August 2017 to correct the amount of Class A2 notes to AUD250 million from AUD225 million. Fitch Ratings has assigned expected ratings to AFG 2017-1 Trust Series 2017-1's prime Australian residential mortgage-backed floating-rate notes. The issuance consists of notes originated by AFG Securities Pty Ltd. The ratings are as follows: AUD65.00 million Class A1 notes: 'AAA(EXP)sf'; Outlook Stable AUD250.00 million Class A2 notes: 'AAA(EXP)sf'; Outlook Stable AUD22.54 million Class AB notes: 'NR(EXP)sf' AUD6.02 million Class B notes: 'NR(EXP)sf' AUD4.20 million Class C notes: 'NR(EXP)sf' AUD1.05 million Class D notes: 'NR(EXP)sf' AUD0.63 million Class E notes: 'NR(EXP)sf' AUD0.56 million Class F notes: 'NR(EXP)sf' The notes will be issued by Perpetual Corporate Trust Limited in its capacity as trustee of AFG 2017-1. At the 6 July 2017 cut-off date, the total collateral pool consisted of mortgages totalling AUD350 million. AFG Securities is a securitisation funding business that funds home loans sourced by AFG Home Loans, the mortgage management division of the Australian Finance Group Ltd. (AFG). AFG Securities holds an Australian credit license and allows AFG Home Loans to fund its own loans in addition to rebranding loans funded by other wholesale lenders. KEY RATING DRIVERS Sufficient Credit Support: The class A1 and A2 notes have credit enhancement (CE) of 10% provided by the subordinate notes. This is sufficient to support the ratings independent of credit provided by lenders' mortgage insurance (LMI), which is present on 46.3% of the portfolio. Pool Characteristics: The portfolio's weighted-average (WA) seasoning is 19 months, with a current WA loan/value ratio (LVR) of 66.0% and WA indexed LVR of 64.5%. Investment loans represent 39.8% of the pool by balance, with interest-only loans at 26.3%. Sequential/Pro Rata Paydown: Principal is paid sequentially prior to enforcement if the step-down payment conditions are not satisfied. Once pro rata tests have been met, principal is allocated on a pro rata basis across all notes except class F. The class F notes will receive no principal allocation until all other notes have been fully repaid. The reimbursement of all losses is paid prior to the distribution of interest on the class F notes. Sufficient Liquidity Support: Liquidity support is provided via excess spread, principal draws and a liquidity facility maintained at 1.0% of the notes balance, with a facility floor of AUD350,000. Experienced Originator: AFG is an independent financial services group providing residential and commercial loans, mortgage management and insurance services. AFG was formed in 1994 and is one of Australia's largest wholesale providers to the third-party introducer market. AFG Securities, a wholly owned subsidiary of AFG, was formed in 2006 to originate AFG's mortgage portfolio. EXPECTED RATING SENSITIVITIES Unexpected decreases in residential property value, increases in the frequency of foreclosures and loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, which could result in negative rating action on the notes. Fitch has evaluated the sensitivity of the ratings assigned to AFG 2017-1 to increased defaults and decreased recovery rates and sensitivity to downgrades in the LMI providers over the life of the transaction. Expected impact on note rating of increased foreclosures: Expected rating: AAAsf/AAAsf Increase in foreclosures by 15%: AAAsf/AAAsf Increase in foreclosures by 30%: AAAsf/AAAsf Expected impact on note rating of decreased recoveries: Expected rating: AAAsf/AAAsf Reduce recoveries by 15%: AAAsf/AAAsf Reduce recoveries by 30%: AAAsf/AAAsf Expected impact on note rating of multiple factors: Expected rating: AAAsf/AAAsf Increase foreclosures by 15%; reduce recoveries by 15%: AAAsf/AAAsf Increase foreclosures by 30%; reduce recoveries by 30%: AAAsf/AA+sf The transaction structure supports an LMI-independent rating for the class A1 and A2 notes; therefore, LMI is not required to support the rating due to the level of credit support provided by the lower notes. Further sensitivity analysis below provides an insight into the model-implied sensitivities the transaction faces when recovery rate assumption stresses are increased to a level that is required to reduce the rating of the class A1 and A2 notes (i) by one full category, (ii) to non-investment grade and (iii) to 'CCCsf'. Our analysis shows that the class A2 notes are expected to be downgraded to 'AA+sf' if the recovery rates reduce by 48%. After applying a 100% recovery stress, the rating on the class A2 notes remained at investment grade. The class A1 notes are expected to maintain their 'AAAsf' ratings at 100% recovery rate stress. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) disclosed in the offering document that relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016. DATA ADEQUACY As part of its ongoing monitoring, Fitch reviewed a small targeted sample of AFG Securities' origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Key rating drivers and expected rating sensitivities are further discussed in the corresponding presale report entitled "AFG 2017-1 Trust Series 2017-1", published today. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by AFG Securities as at 6 July 2017 Arrears data provided by AFG Securities as at June 2017 Transaction documentation provided by King & Wood Mallesons, the issuer's counsel. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. RESI INVESTOR This transaction is included in Fitch's Resi Investor tool (resi.fitchratings.com). Resi Investor allows users to conduct their own scenario analysis. The tool allows investors to vary Fitch's rating assumptions to calculate their own expected losses and model-implied rating outcomes. It also allows investors to generate pivot table-type stratification tables, interactive charts and transaction comparisons. Contacts: Primary Analyst Spencer Wilson Associate Director +612 8256 0320 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst David Carroll Director +612 8256 0333 Committee Chairperson Natasha Vojvodic Senior Director +612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 14 Jul 2017) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here RMBS Lenders’ Mortgage Insurance Rating Criteria (pub. 09 Jun 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Related Research AFG 2017-1 Trust Series 2017-1 here AFG 2017-1 Trust in Respect of Series 2017-1 - Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 PUBLIC 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes 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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