OREANDA-NEWS. September 21, 2015.  Fitch Ratings has assigned final ratings to Medallion Trust Series 2015-2's residential mortgage-backed floating-rate notes. The issuance consists of notes backed by first-ranking Australian residential mortgages originated by Commonwealth Bank of Australia Limited (CBA, AA-/Stable/F1+). The ratings are as follows:

AUD1,840m Class A1 notes: 'AAAsf'; Outlook Stable;
AUD120m Class B notes: 'AA-sf'; Outlook Stable; and
AUD40m Class C notes: 'NRsf'.

The notes were issued by Perpetual Trustee Company Limited in its capacity as trustee of Medallion Trust Series 2015-2.

KEY RATING DRIVERS
Conservative Pool Characteristics: The portfolio contains loans that have conservative pool characteristics. The weighted-average (WA) seasoning is 33 months, with a WA unindexed loan/value ratio (LVR) of 59.0% and WA Indexed LVR of 56.1%. The average obligor current loan size is AUD262,880; investment loans represent 23.9% of the pool by balance, and interest-only loans represent 18.8%.

Sufficient Credit Support: The Class A1 notes have sufficient credit enhancement, of 8% provided by the Class B and C notes, and is independent of any credit provided by lenders mortgage insurance (LMI). The rating of the Class B notes is reliant upon the credit support of 2% provided by both the subordinated Class C notes and LMI.

Sequential/Pro Rata Paydown: Interest is paid sequentially (after expenses) towards the Class A1 notes, Class B and then Class C note interest. The reimbursement of all losses is paid after the distribution of interest on the Class B notes. Principal will be allocated pro rata towards the Class A1 and B notes, with the Class B notes receiving the Class C pro rata share, if certain conditions are met.
Sufficient Liquidity Support: Liquidity support will be provided via excess spread, principal draws and a liquidity facility sized at 0.75% of the notes' balance, with a facility floor of AUD1,500,000. The liquidity facility will amortise, subject to the floor, while performance-based triggers are satisfied.

Strong Track Record: CBA has considerable experience in mortgage lending and servicing. CBA originates loans through its nationwide branch network, mobile sales force, online and telephone sales operations, and third-party mortgage brokers. The arrears level of securitised Medallion transactions has tracked in line or below Fitch's Dinkum Index for prime RMBS.

RATING SENSITIVITIES
Unexpected decreases in residential property value, increases in the frequency of foreclosures, and loss severity on defaulted mortgages 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 ratings assigned to Medallion Trust Series 2015-2 to increased defaults and decreased recovery rates over the life of the transaction. Its analysis found that the Class A1 notes' ratings remained stable under the mild and severe default and recovery scenarios.

The analysis found the Class B notes' ratings were sensitive to the mild and severe default and recovery scenarios. Under a stress where Fitch's default rate is increased by 15% (mild) and 30% (severe), the Class B rating would decline to 'Asf' in both cases. Under a reduced recovery rate stress where Fitch's recovery expectation is reduced by 15% (mild) and 30% (severe), the Class B rating would decline to 'Asf' and 'BBB+sf', respectively. The rating is severely impacted by the combination scenario where the additional stresses for defaults and recoveries are applied simultaneously, with ratings moving to 'A-sf'(mild) and 'BBBsf' (severe), respectively. The rating of the Class A1 notes are impacted only by a combination scenario of 30% increased defaults and 30% decrease in recovery rates, with the rating declining to 'AA+sf.'

The transaction structure supports a LMI independent rating for the Class A1 notes. Therefore LMI is not required to support the rating due to the level of credit support provided by the lower notes. The Class B notes are reliant upon LMI to support the rating.

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 CBA compared to CBA'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 Rating Sensitivities are further discussed in the corresponding new issue report entitled "Medallion Trust Series 2015-2", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.