OREANDA-NEWS. Fitch Ratings has affirmed six tranches of three REDS Trust Series RMBS transactions and upgraded one. These transactions are securitisations of first-ranking Australian residential mortgages originated by Bank of Queensland (A-/Stable/F2).The rating actions are listed below.

Series 2012-1E REDS Trust (REDS 2012-1E):
AUD206.9m Class A1 (ISIN AU3FN0017281) notes affirmed at 'AAAsf'; Outlook Stable;
AUD195.5m Class A2R (ISIN AU3FN0029583) notes affirmed at 'AAAsf'; Outlook Stable;
AUD42.0m Class AB (ISIN AU3FN0017307) notes affirmed at 'AAAsf'; Outlook Stable; and
AUD18.7m Class B (ISIN AU3FN0017315) notes upgraded to 'AAsf' from 'AA-sf''; Outlook Stable.

Series 2013-1 REDS Trust (REDS 2013-1):
AUD244.4m Class A1 (ISIN AU0000RDIHA7) notes affirmed at 'AAAsf'; Outlook Stable; and
AUD170.0m Class A2 (ISIN AU0000RDIHB5) notes affirmed at 'AAAsf'; Outlook Stable;

Series 2015-1 REDS Trust (REDS 2015-1):
AUD658.9m Class A (ISIN AU3FN0026746) notes affirmed at 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS
The rating actions reflect Fitch's view that credit enhancement levels are able to support the notes' current ratings, in line with Fitch's expectations of Australia's economic conditions. The credit quality and performance of the loans in the respective collateral pools also remain in line with the agency's expectations. The upgrade of the Class B notes of REDS 2012-E reflects the build-up of credit enhancement sufficient to achieve higher ratings.

As per the APAC Residential Mortgage criteria, the default model was not run for two out of the three transactions for this rating action as a review of pre-determined performance triggers indicates that the transactions display stable asset performance. The default model was run for the REDS 2012-1E transaction.

At end-Jan 2016, the reported 30+ day arrears for REDS 2012-1E, REDS 2013-1 and REDS 2015-1 stood at 1.7%, 1.7% and 0.7% of the portfolio, respectively. At end-Jan 2016 the reported weighted average (WA) loan/value ratios (LVR) were low at 47.2%, 48.5% and 48.2%. The transactions have experienced low levels of losses, with all losses covered by lenders' mortgage insurance (LMI) or excess spread.

All loans in the pool are covered by LMI, provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength rating: AA-/Stable) and Genworth Financial Mortgage Insurance Pty Ltd (Insurer Financial Strength rating: A+/Stable).

On 24 November 2015 the Class A2R notes were issued for the REDS 2012-1E to refinance the soft bullet Class A2 notes (the Class A2A and Class A2S notes). The Class A2 notes were repaid from the proposed issuance of Class A2R notes.

RATING SENSITIVITIES
The initial sequential pay-down has resulted in an increase in credit enhancement levels for the senior notes of all the transactions, with the 'AAAsf' rated notes able to withstand multiples of the latest reported arrears. The ratings are not expected to be affected by modest changes in performance.

The ratings of all the transactions' Class A and AB notes are independent of downgrades to the LMI providers' ratings. The Class B notes of REDS 2012-1E are LMI dependent.

For the REDS 2012-1E transaction, Fitch's 'AAAsf' breakeven stressed default rate is 6.0%. The Class A notes can withstand an additional 64.2% in defaults at Fitch's 'AAAsf' loss severity. The Class AB notes can withstand an additional 19.4% in defaults at Fitch's 'AAAsf' loss severity. At the 'AAsf' breakeven stressed default rate of 5.1%, the Class B notes can withstand an additional 6.1% at Fitch's 'AAsf' loss severity.

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 Bank of Queensland compared to its 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.

A comparison of the transaction's representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links shown under Related Research below.