OREANDA-NEWS. Fitch Ratings has assigned expected ratings to Series 2015-1 REDS EHP Trust's automotive and equipment-backed floating-rate notes. The issuance consists of notes backed by automotive and equipment loans and leases originated by Bank of Queensland Equipment Finance (BOQEF), whose ultimate parent is Bank of Queensland (BOQ, A-/Stable/F2). The ratings are as follows:

AUD395m Class A notes: 'AAA(EXP)sf'; Outlook Stable;
AUD29m Class B notes: 'AA(EXP)sf'; Outlook Stable;
AUD24m Class C notes: 'A (EXP)sf'; Outlook Stable;
AUD12m Class D notes: 'BBB(EXP)sf'; Outlook Stable;
AUD12.5m Class E notes: 'BB(EXP)sf'; Outlook Stable; and
AUD27.5m Seller notes: 'NRsf'

The notes will be issued by Perpetual Trustee Company Limited in its capacity as trustee of Series 2015-1 REDS EHP Trust.

At the cut-off date, the total collateral pool consisted of 7,871 loan and lease receivables totalling approximately AUD494m, with an average size of AUD62,730. All receivables were originated by BOQEF and are amortising principal and interest loans and leases for cars and light commercial vehicles (28.6%), trucks and buses (29.2%), excavators (10.6%), trailers (10.5%) and other wheels (21.1%). The pool contains loans with varying balloon amounts payable at maturity (45.4%), with a weighted average balloon payment of 12.8%.

The transaction also benefits from a large and diverse number of small business borrowers across a broad range of industries.

KEY RATING DRIVERS
Sufficient Enhancement: A sequential pay/pro rata pay structure, consistent with prior transactions, allows principal to be paid pro rata to all classes of notes. Initial hard credit enhancement (CE) to the 'AAAsf' notes totals 21%. Pro rata paydown will commence when hard CE reaches 19.5% for the Class B notes if the transaction performs consistently well.

Experienced Originator: BOQEF is an established originator in the market that has been providing auto and equipment financing since 1971, and is a regular issuer in the bond market with a total of nine issues, via REDS EHP, since 2003.

Diverse and Granular Portfolio: The portfolio is granular with a diverse mix of new and used cars, light commercial vehicles, trucks, buses, trailers, excavators, and other equipment. The assets are spread across a wide range of industries and geographic locations.

Balloon Loans in Portfolio: The pool comprises amortising principal, and interest lease and loan receivables, with varying balloon amounts payable at maturity. The WA balloon is 12.8%.

Subordinated Coupon: The Class C, D, E and seller notes will receive a subordinated coupon that will be paid prior to distribution of excess spread to the unit holder and will not be eligible to draw from any of the available sources of liquidity.

Multiple Levels of Liquidity: Multiple sources of liquidity support ensure stable cash flows for all notes and trust expenses. Hedging arrangements are in place to address fixed-to-floating rate mismatches between the fixed rate earned on the assets and floating rate liability payments.

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

EXPECTED RATING SENSITIVITIES
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case, and would likely result in a decline in credit enhancement (CE) and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage.

Fitch has evaluated the sensitivity of the ratings assigned to Series 2015-1 REDS EHP Trust to increased defaults and decreased recovery rates over the life of the transaction. Our analysis found that the rating of all Classes were negatively impacted under mild (10%), moderate (25%) and severe (50%) default stress, with the exception of the Class D notes which remained stable under mild stress, while the Class E notes remained stable under mild and moderate stress, while being adversely impacted only under a severe stress.

The Class A notes remained stable under mild (10%) and moderate (25%) recovery stress, but adversely impacted under severe (50%) recovery stress. The Class C and D notes remained stable under mild recovery rate stress only and negatively impacted under higher stress scenarios, while the Class E notes remained stable under all recovery stresses. The Class B notes were adversely impacted under all recovery rate stresses.

The ratings of the Class D and E notes were adversely impacted under both a moderate and severe combination stress scenario of 25% increased defaults and 25% decrease in recovery rates, and 50% increased defaults and 50% decrease in recoveries. All other rated classes were negatively impacted under all combination stresses from mild to severe.

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 10 sample loan files focusing on the underwriting procedures conducted by BOQEF compared to BOQEF'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.

Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled, "Series 2015-1 REDS EHP Trust", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.