April 3, 2017 / 12:45 AM / 4 months ago

Fitch Assigns Expected Ratings to Light Trust 2017-1

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Light Trust 2017-1 here SYDNEY, April 02 (Fitch) Fitch Ratings has assigned expected ratings to Light Trust 2017-1's mortgage-backed floating-rate notes. The issuance consists of notes backed by Australian residential mortgages originated by Australian Central Credit Union Limited, trading as People's Choice Credit Union. The ratings are as follows: AUD322.00 million Class A1 notes: 'AAA(EXP)sf'; Outlook Stable AUD7.35 million Class A2 notes: 'AAA(EXP)sf'; Outlook Stable AUD11.90 million Class AB notes: 'NR(EXP)sf' AUD5.25 million Class B notes: 'NR(EXP)sf' AUD2.80 million Class C notes: 'NR(EXP)sf' AUD0.70 million Class D notes: 'NR(EXP)sf' The notes will be issued by Perpetual Corporate Trust Limited in its capacity as trustee of Light Trust 2017-1. The total collateral pool consisted of 2,127 loans totalling AUD350 million at the 28 February 2017 cut-off date. The loan pool will be finalised prior to the closing date and adjusted to match the final liability balance. KEY RATING DRIVERS Sufficient Credit Support: The class A1 and A2 notes have sufficient credit enhancement of 8.0% and 5.9%, respectively, provided by the class AB, B, C and D notes, and are independent of any credit provided by lenders' mortgage insurance (LMI). Conservative Pool Characteristics: The portfolio has weighted-average (WA) seasoning of 47 months, a WA unindexed current loan/value ratio (LVR) of 63.0% and a WA indexed current LVR of 60.9%. The average obligor current loan size is AUD213,155. Under Fitch's methodology, investment loans represent 25.0% of the pool by balance, interest-only loans represent 8.9% and fixed-rate loans 33.6%. LMI is present on 100% of the pool. Sequential/Pro Rata Paydown: Classes A1 and A2 will initially receive principal on a pari passu basis, with all other note classes receiving principal sequentially prior to the pro rata test conditions being met. Once met, principal will be allocated on a pro rata basis across all notes. Multiple Liquidity Sources: Liquidity support will be provided via excess income, a conditional yield reserve that traps excess income up to a target balance of AUD800,000, principal draws and a liquidity facility sized at 1.5% of the note balance, with a facility floor of 0.15% of the original note balance. Liquidity will be available to all note classes, however, charge-off triggers will restrict liquidity support to deteriorating tranches. Available Replacement Counterparties: Counterparty default risk is mitigated by the appointment of National Australia Bank Limited (NAB, AA-/Stable/F1+) as an eligible standby fixed/floating-rate swap provider. 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 are likely to result in a decline in credit enhancement and remaining loss-coverage levels available to the notes. Decreased credit enhancement may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis of the ratings by stressing the transaction's initial base-case assumptions. Its analysis found that the expected ratings of the class A1 and A2 notes were not affected under Fitch's moderate or severe foreclosure stress (15% and 30% increase) scenarios. The analysis of the recovery scenarios found that the expected ratings of the class A1 and A2 notes were affected under Fitch's severe recovery (30% decrease) scenario, which resulted in the expected ratings of the notes falling to 'AA+sf' The expected ratings of the class A1 and A2 notes were not affected under Fitch's moderate combination stress in defaults and recoveries, but reduced to 'AAsf' under Fitch's severe combination stress of 30% increase in defaults and 30% decrease in recoveries. The transaction structure supports an LMI independent rating for the class A1 and A2 notes; therefore, LMI is not required to support the rating due to the level of credit support provided by the lower notes. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) disclosed in the offering document that relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016. DATA ADEQUACY As part of its ongoing monitoring, Fitch reviewed a small targeted sample of People's Choice's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Key rating drivers and expected rating sensitivities are further discussed in the corresponding presale report entitled "Light Trust 2017-1", published today. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by People's Choice as at 19 February 2017 Transaction documentation provided by Clayton Utz, the issuer's counsel. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. RESI INVESTOR This transaction is included in Fitch's Resi Investor tool (resi.fitchratings.com). Resi Investor allows users to conduct their own scenario analysis. The tool allows investors to vary Fitch's rating assumptions to calculate their own expected losses and model-implied rating outcomes. It also allows investors to generate pivot table-type stratification tables, interactive charts and transaction comparisons. Contacts: Primary Analyst James Leung Director +612 8256 0322 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst Chris Stankovski Director +612 8256 0341 Committee Chairperson Ben McCarthy Managing Director +612 8256 0388 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria APAC Residential Mortgage Criteria (pub. 30 Aug 2016) here Global Criteria for Lenders’ Mortgage Insurance in RMBS (pub. 28 Jul 2016) here Global Structured Finance Rating Criteria (pub. 27 Jun 2016) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 20 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 20 Mar 2017) here Related Research Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021540 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT <a href="https://www.fitchratings.com">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT <a href="https://www.fitchratings.com/site/regulatory">HTTPS://WWW. FITCHRATINGS.COM /SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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