OREANDA-NEWS. Fitch Ratings has assigned expected ratings to Flexi ABS Trust 2016-1's asset-backed floating-rate notes. The issuance consists of notes backed by small balance unsecured consumer loans originated by Certegy Ezi-Pay Pty Ltd (Certegy) whose ultimate parent is FlexiGroup Limited (FlexiGroup). The ratings are as follows:

AUD91m Class A1 notes: 'F1+(EXP)sf';
AUD60.5m Class A2 notes: 'AAA(EXP)sf'; Outlook Stable;
AUD50m Class A2-G notes: 'AAA(EXP)sf'; Outlook Stable;
AUD12.48m Class B notes: 'AA(EXP)sf'; Outlook Stable;
AUD14.82m Class C notes: 'A(EXP)sf'; Outlook Stable;
AUD10.4m Class D notes: BBB(EXP)sf'; Outlook Stable;
AUD7.8m Class E notes: BB(EXP)sf'; Outlook Stable; and
AUD13m Class F notes: 'NR(EXP)sf'

The notes will be issued by Perpetual Corporate Trust Limited in its capacity as trustee of Flexi ABS Trust 2016-1.

At the cut-off date, the total collateral pool consisted of 131,613 individual consumer loan contracts totalling AUD256.2m. The receivables are retail point-of-sale interest-free consumer-finance loans used to finance a wide variety of products including solar equipment (39.0%); jewellery (20.1%); fitness equipment (3.8%); and other products. Homeowners make up 51.4% of borrowers and 34.4% are repeat Certegy customers.

KEY RATING DRIVERS
Availability of Excess Spread: The transaction yields significant levels of excess spread, which is used to support the ratings of the class B, C, D and E notes; while sufficient credit enhancement, provided by the subordination of junior notes, exists for the class A1, A2 and A2-G notes to be rated independent of any soft credit support (excess spread).

Experienced Originator: Certegy is a wholly owned subsidiary of FlexiGroup, a provider of retail point-of-sale consumer finance. Certegy provides "no interest ever" consumer loans, an interest-free product, and cheque guarantee products in Australia. Certegy delivers its products through a network of retailers and service providers. Delinquencies greater than 30 days on Certegy's retail portfolio have historically tracked below 3.0%.

Diverse and Granular Portfolio: The portfolio consists of receivables originated to a geographically diversified pool of Australian retail customers across many asset types. The average contract size is AUD1,947, while the weighted average (WA) remaining term stands at 22.7 months. Homeowners make up 51.4% of borrowers and 34.4% are repeat Certegy customers.

Support Features Back Rating: A liquidity reserve, funded by proceeds from issuance, will ensure stable cash flows for all rated notes and trust expenses. A derivative reserve account will be established to set aside voluntary prepayments made by borrowers to ensure sufficient income is available to cover future swap payments.

No Residual Value Risk: All securitised loans are structured so there is no exposure to residual value risk, with the borrower liable for such risks at all times.

EXPECTED RATING SENSITIVITIES
Unexpected increases in the frequency of defaults and the loss severity on defaulted receivables could produce loss levels higher than Fitch's base case, which could result in negative rating actions on the notes. Fitch has evaluated the sensitivity of the expected ratings assigned to Flexi ABS Trust 2016-1 to increased gross default levels over the life of the transaction.

The agency's analysis found that the expected ratings assigned were not sensitive to Fitch's mild (10% increase) default stress. Under Fitch's moderate (25% increase) stress, the ratings on the class A2 and A2-G notes declined to 'AA+sf', the class B note rating declined to 'A+sf' and the class C note rating declined to 'A-sf'.

Under Fitch's severe stress, in which the base case defaults increased by 50%, the ratings on the class A2 and A2-G notes declined to 'AA-sf', while the class B, C and D notes' ratings declined to 'Asf', 'BBBsf' and 'BB+sf', respectively.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch conducted a file review of 12 sample loan files focusing on the underwriting procedures conducted by Certegy compared to Certegy's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.