22.07.2016, 18:39
Fitch Affirms Nine ConQuest Tranches; Upgrades Two
OREANDA-NEWS. Fitch Ratings has affirmed nine and upgraded two classes of notes from five ConQuest RMBS Trusts. The transactions are securitisations of Australian conforming residential mortgages originated by MyState Bank Limited. The rating actions are listed at the end of this commentary.
KEY RATING DRIVERS
The affirmations reflect Fitch's view that available credit enhancement supports the notes' current ratings, the agency's expectations of Australia's economic conditions and that the credit quality and performance of the loans in the collateral pools have remained within the agency's expectations. The upgrades of the class B1 and B2 notes of ConQuest 2014-2 reflect the build-up of credit enhancement sufficient to achieve higher ratings.
As per the APAC Residential Mortgage criteria, the default model was not run for ConQuest 2010-2 and ConQuest 2013-1, as a review of pre-determined performance triggers indicates that the transactions display stable asset performance. The default model was not run for the Conquest 2016-1 transaction as the transaction closed in May 2016 and the pool has not changed significantly since then. Also, the portfolio is within the pool parameters and the analysis at closing was based on stressed pool parameters. The default model was run for the remaining transactions.
ConQuest 2010-1R, ConQuest 2010-2, ConQuest 2013-1, ConQuest 2014-2 and ConQuest 2016-1 are 100% made up of full-doc loans. At 30 June 2016, 30+ arrears were 1.07%, 1.4%, 2.88%, 0.94% and 0.0% respectively, compared with Fitch's 30+ days 1Q16 Dinkum prime index of 1.11%.
Since closing in May 2010, ConQuest 2010-1R has experienced six defaults, resulting in four losses totalling AUD219,227. All losses have been covered by lenders' mortgage insurance (LMI) and excess spread. At 30 June 2016, LMI covered 42.9% of the underlying portfolio, provided by Genworth Financial Mortgage Insurance Pty Ltd (20.1%; Insurer Financial Strength Rating: A+/Stable) and QBE Lenders' Mortgage Insurance Limited (22.8%; Insurer Financial Strength Rating: AA-/Stable).
ConQuest 2010-2, ConQuest 2013-1, ConQuest 2014-2 and ConQuest 2016-1 have 100% LMI coverage, with policies provided mainly by QBE Lenders Mortgage Insurance Ltd and Genworth Financial Mortgage Insurance Pty Ltd. At 30 June 2016, three claims had been submitted to LMI in ConQuest 2010-2 Trust, all of which were paid in full. There have been no losses for the remaining transactions.
ConQuest 2010-1R remains within its 10-year substitution period, ending in August 2024, and no amortisation of the notes has occurred to date. Fitch is comfortable with the long revolving period because the portfolio stratifications have not changed significantly since initial issue, MyState's product mix has not materially changed over this time, and the portfolio is performing as expected.
The ConQuest 2016-1 transaction allows for the addition of new receivables during the revolving period in accordance with the eligibility criteria and portfolio parameters. Structural features and performance-based triggers have been included to restrict the ability to add new receivables in certain circumstances.
RATING SENSITIVITIES
Credit enhancement levels for the senior notes across the transactions can support many multiples of the arrears levels reported in the latest investor reports. The ratings are not expected to be affected by modest changes in performance. The rated notes for most of the transactions are independent of downgrades of the LMI providers' ratings. However, the class A notes of ConQuest 2010-1R, class B1 and B2 notes of ConQuest 2014-2 and the class A and B1 notes of ConQuest 2016-1 are LMI dependent; therefore LMI is a key driver supporting the corresponding rating. However, all the rated notes that are dependent on LMI can withstand at least a one-notch downgrade to the mortgage insurance providers' ratings.
For ConQuest 2010-1R, Fitch's 'AAAsf' breakeven default rate is 18.9%. The class A notes can withstand an additional 3.5%% in defaults at Fitch's 'AAAsf' loss severity. For ConQuest 2014-2, Fitch's 'AAAsf' breakeven default rate is 9.8%. The class A1, A2 and AB notes can withstand an additional 55.1%, 29.2% and 12.3% in defaults respectively at Fitch's 'AAAsf' loss severity. The class B1 notes can withstand an additional 5.4% in defaults at Fitch's 'AAsf' loss severity. The class B2 notes can withstand an additional 4.3% in defaults at Fitch's 'BBB+sf' loss severity.
For the ConQuest 2016-1 transaction, principal is allocated sequentially at all times, increasing the percentage of credit support to the rated notes and mitigating potential tail-risk. The transaction requires that a minimum dollar amount of subordination must be maintained for each rated note after each subsequent note issuance or redemption.
There are currently no charge offs on any notes of any transaction. The prospect for downgrades is considered remote at present, given the level of subordination available to all rated notes, the performance of the pools as well as adequate excess spread. Fitch's analysis excludes credit to excess spread.
KEY RATING DRIVERS
The affirmations reflect Fitch's view that available credit enhancement supports the notes' current ratings, the agency's expectations of Australia's economic conditions and that the credit quality and performance of the loans in the collateral pools have remained within the agency's expectations. The upgrades of the class B1 and B2 notes of ConQuest 2014-2 reflect the build-up of credit enhancement sufficient to achieve higher ratings.
As per the APAC Residential Mortgage criteria, the default model was not run for ConQuest 2010-2 and ConQuest 2013-1, as a review of pre-determined performance triggers indicates that the transactions display stable asset performance. The default model was not run for the Conquest 2016-1 transaction as the transaction closed in May 2016 and the pool has not changed significantly since then. Also, the portfolio is within the pool parameters and the analysis at closing was based on stressed pool parameters. The default model was run for the remaining transactions.
ConQuest 2010-1R, ConQuest 2010-2, ConQuest 2013-1, ConQuest 2014-2 and ConQuest 2016-1 are 100% made up of full-doc loans. At 30 June 2016, 30+ arrears were 1.07%, 1.4%, 2.88%, 0.94% and 0.0% respectively, compared with Fitch's 30+ days 1Q16 Dinkum prime index of 1.11%.
Since closing in May 2010, ConQuest 2010-1R has experienced six defaults, resulting in four losses totalling AUD219,227. All losses have been covered by lenders' mortgage insurance (LMI) and excess spread. At 30 June 2016, LMI covered 42.9% of the underlying portfolio, provided by Genworth Financial Mortgage Insurance Pty Ltd (20.1%; Insurer Financial Strength Rating: A+/Stable) and QBE Lenders' Mortgage Insurance Limited (22.8%; Insurer Financial Strength Rating: AA-/Stable).
ConQuest 2010-2, ConQuest 2013-1, ConQuest 2014-2 and ConQuest 2016-1 have 100% LMI coverage, with policies provided mainly by QBE Lenders Mortgage Insurance Ltd and Genworth Financial Mortgage Insurance Pty Ltd. At 30 June 2016, three claims had been submitted to LMI in ConQuest 2010-2 Trust, all of which were paid in full. There have been no losses for the remaining transactions.
ConQuest 2010-1R remains within its 10-year substitution period, ending in August 2024, and no amortisation of the notes has occurred to date. Fitch is comfortable with the long revolving period because the portfolio stratifications have not changed significantly since initial issue, MyState's product mix has not materially changed over this time, and the portfolio is performing as expected.
The ConQuest 2016-1 transaction allows for the addition of new receivables during the revolving period in accordance with the eligibility criteria and portfolio parameters. Structural features and performance-based triggers have been included to restrict the ability to add new receivables in certain circumstances.
RATING SENSITIVITIES
Credit enhancement levels for the senior notes across the transactions can support many multiples of the arrears levels reported in the latest investor reports. The ratings are not expected to be affected by modest changes in performance. The rated notes for most of the transactions are independent of downgrades of the LMI providers' ratings. However, the class A notes of ConQuest 2010-1R, class B1 and B2 notes of ConQuest 2014-2 and the class A and B1 notes of ConQuest 2016-1 are LMI dependent; therefore LMI is a key driver supporting the corresponding rating. However, all the rated notes that are dependent on LMI can withstand at least a one-notch downgrade to the mortgage insurance providers' ratings.
For ConQuest 2010-1R, Fitch's 'AAAsf' breakeven default rate is 18.9%. The class A notes can withstand an additional 3.5%% in defaults at Fitch's 'AAAsf' loss severity. For ConQuest 2014-2, Fitch's 'AAAsf' breakeven default rate is 9.8%. The class A1, A2 and AB notes can withstand an additional 55.1%, 29.2% and 12.3% in defaults respectively at Fitch's 'AAAsf' loss severity. The class B1 notes can withstand an additional 5.4% in defaults at Fitch's 'AAsf' loss severity. The class B2 notes can withstand an additional 4.3% in defaults at Fitch's 'BBB+sf' loss severity.
For the ConQuest 2016-1 transaction, principal is allocated sequentially at all times, increasing the percentage of credit support to the rated notes and mitigating potential tail-risk. The transaction requires that a minimum dollar amount of subordination must be maintained for each rated note after each subsequent note issuance or redemption.
There are currently no charge offs on any notes of any transaction. The prospect for downgrades is considered remote at present, given the level of subordination available to all rated notes, the performance of the pools as well as adequate excess spread. Fitch's analysis excludes credit to excess spread.
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