OREANDA-NEWS. March 14, 2016. Fitch Ratings has upgraded four tranches of Series 2013-1 REDS EHP Trust (Series 2013-1) and affirmed one for the same transaction. At the same time, Fitch has affirmed the ratings of all Series 2014-1 REDS EHP Trust (Series 2014-1) and Series 2015-1 REDS EHP (Series 2015-1) tranches. The transactions are securitisations of first-ranking small balance auto and equipment loans originated by BOQ Equipment Finance Limited. The rating actions are listed at the end of this commentary.

KEY RATING DRIVERS
The three notch upgrade to Series 2013-1's Class B, C, D and E notes reflects: losses that have been substantially lower than Fitch's stressed assumptions; an increase in available credit enhancement (CE) due to sequential pay down of the notes; the stable credit quality and performance of the pool; Fitch's expectations of Australia's continued benign economic conditions in the near term; and excess spread has been strong to date. At 31 January 2016, 30+ days arrears were 2.97%, with net losses since close at AUD10.5m or 1.18% of the original pool.

Series 2013-1 experienced two charge-offs to the seller note in April 2014 and December 2015, both of which were fully paid off in the following month using excess spread. Due to the charge-off in December 2015 the transaction reverted to sequential pay for one month, which led to an increase in the subordination available to the Class A notes.

The affirmations of Series 2014-1 and Series 2015-1 reflect Fitch's view that: available CE is sufficient to support the notes at their current rating levels; the stable credit quality and performance of the pool; and Fitch's expectations of Australia's economic conditions.

The transactions' performance falls within Fitch's base-case expectations. At 31 January 2016 net losses experienced since closing for Series 2014-1 and Series 2015-1 were 0.9% and 0.07% respectively, and 30+ days arrears were 1.76% and 0.6%, respectively. To date, excess spread has been more than sufficient to cover for losses experienced in Series 2014-1 and Series 2015-1.

RATING SENSITIVITIES
The prospects for downgrades are considered remote given the level of subordination and excess spread available on all transactions. A significant and unexpected increase in delinquencies, defaults and losses would be necessary before any negative rating action would be considered.

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 BOQ Equipment Finance Limited 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.

The rating actions are as follows:

Series 2013-1 REDS EHP Trust:
AUD111.8m Class A (ISIN AU3FN0019097) notes affirmed at 'AAAsf'; Outlook Stable;
AUD11.1m Class B (ISIN AU3FN0019105) notes upgraded to 'AAAsf from 'AAsf'; Outlook Stable;
AUD8.4m Class C (ISIN AU3FN0019113) notes upgraded to 'AAsf' from 'Asf'; Outlook Stable;
AUD6.2m Class D (ISIN AU3FN0019121) notes upgraded to 'Asf' from 'BBBsf''; Outlook Stable; and
AUD12.4m Class E (ISIN AU3FN0019139) notes upgraded to 'BBBsf' from 'BBsf''; Outlook Stable.

Series 2014-1 REDS EHP Trust:
AUD382.4m Class A (ISIN AU3FN0024766) notes affirmed at 'AAAsf'; Outlook Stable;
AUD28.0m Class B (ISIN AU3FN0024774) notes affirmed at 'AAsf'; Outlook Stable;
AUD33.1m Class C (ISIN AU3FN0024782) notes affirmed at 'Asf'; Outlook Stable;
AUD15.3m Class D (ISIN AU3FN0024790) notes affirmed at 'BBBsf'; Outlook Stable; and
AUD15.9m Class E (ISIN AU3FN0024808) notes affirmed at 'BBsf'; Outlook Stable.

Series 2015-1 REDS EHP Trust:
AUD495.6m Class A (ISIN AU3FN0028916) notes affirmed at 'AAAsf'; Outlook Stable;
AUD43.5m Class B (ISIN AU3FN0028924) notes affirmed at 'AAsf'; Outlook Stable;
AUD36.0m Class C (ISIN AU3FN0028932) notes affirmed at 'Asf'; Outlook Stable;
AUD18.0m Class D (ISIN AU3FN0028940) notes affirmed at 'BBBsf'; Outlook Stable; and
AUD18.8m Class E (ISIN AU3FN0028957) notes affirmed at 'BBsf'; Outlook Stable.