OREANDA-NEWS. Fitch Ratings has assigned ANZ Bank New Zealand Limited's (ANZ NZ, AA-/Stable/F1+) Series 2015-1 EUR750m mortgage covered bonds a rating of 'AAA'. The Outlook is Stable. The fixed-rate bond is due in January 2022 and benefits from a 12-month extendable maturity. This brings the total outstanding issuance under ANZNZ's covered bond programme to NZD5.05bn.

The outstanding covered bonds have been issued through ANZ New Zealand (Int'l) Limited (ANZNIL), a guaranteed issuing vehicle used for international funding by ANZ Bank New Zealand. These covered bonds are then guaranteed by ANZNZ Covered Bond Trust Limited, a bankruptcy-remote SPV established under the laws of New Zealand.

KEY RATING DRIVERS
The covered bond rating is based on ANZNZ's Long-Term Issuer Default Rating (IDR) of 'AA-', a Discontinuity Cap (D-Cap) of 2 (high), and the highest nominal asset percentage (AP) in the last 12 months (63.7%), as ANZNZ's Short-Term IDR is above 'F3'. This provides a large buffer when compared to Fitch's breakeven AP for a 'AAA' rating of 86.5%, supporting a 'AA' tested rating on a probability of default (PD) basis and a 'AAA' rating after giving credit for recoveries. The Outlook on the covered bonds reflects the Stable Outlook on ANZNZ's IDR.

The 'AAA' breakeven AP of 86.5%, corresponding to a breakeven overcollateralisation (OC) of 15.6%, is driven by an asset disposal loss component of 18.2% due to maturity mismatches and the refinancing assumptions applied to New Zealand residential mortgages, followed by the cover pool's credit loss of 4.3% in a 'AAA' scenario. The cash flow valuation component reduces the 'AAA' breakeven OC by 2.4% due to the longer weighted average life of the assets versus the liabilities and excess spread available under the programme. The 'AAA' breakeven AP has increased from 85.5% to 86.5% since last analysis in August 2014 due to the improvement in asset and liability mismatches and a decrease in the number of Flexi loans that are attached to the cover pool assets.

Maturity mismatches have improved since last analysis, yet remain significant. The weighted average residual life of the assets has decreased from 13.4 to 12.8 years and the liabilities have increased from 3.1 to 3.6 years.

As of end-December 2014, the cover pool consisted of 49,265 loans secured by New Zealand residential property mortgages with a total outstanding balance of NZD7.3bn.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to downgrade should any of the following occur: ANZNZ's IDR was downgraded by two notches; the D-Cap fell by more than one category; or the AP that Fitch takes into account in its analysis increased above the 'AAA' breakeven AP of 86.5%.