OREANDA-NEWS. Fitch Ratings has affirmed the ratings of HBS Trust 2014-1's Class A and Class AB residential mortgage-backed floating rate notes. The transaction is a securitisation of first-ranking Australian residential mortgages originated Heritage Bank Limited (BBB+/Stable). The rating actions are as follows:

AUD 289.9m Class A (ISIN AU3FN0022299) notes affirmed at 'AAAsf'; Outlook Stable; and
AUD 20.0m Class AB (ISIN AU3FN0022307) notes affirmed at 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS
The affirmations reflect Fitch's view that available credit enhancement is sufficient to support the notes' current ratings, and the agency's expectations of Australia's economic conditions. The credit quality and performance of the loans in the collateral pool has remained in line with expectations.

As at end-December 2014, 30+ days arrears made up 0.05% of the pool, well below Fitch's Dinkum Index, which measures industry-wide performance (3Q14: 1.08%). No defaults or losses had been recorded since issuance.

The pool is geographically concentrated in Queensland, with 57.6% of collateral located in the state. The Fitch-calculated weighted average loan-to-value ratio was 54.3% after indexation, compared to 58.1% before indexation.

All loans in the underlying portfolios are covered by lenders' mortgage insurance (LMI), with the majority of policies (99.9%) being provided by QBE Lenders Mortgage Insurance Pty Limited (Insurer Financial Strength Rating: AA-/Stable).

RATING SENSITIVITIES
Sequential pay-down has increased credit enhancement for the rated notes, which can withstand multiples of the latest reported arrears. At the 'AAAsf' modelled loss severity of 21.5% after lenders' mortgage insurance, the notes could withstand default rates of 46% (Class A) and 17% (Class AB). This analysis excludes credit to excess spread.

The rating of the Class AB notes is able to withstand a three notch downgrade of the LMI providers, while that of the Class A notes is independent of LMI.

Initial Key Rating Drivers and Rating Sensitivity are described further in the New Issue report dated 17 March 2014.