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Fitch Rates ANZ's Series 2014-3 Covered Bonds 'AAA'/Stable
November 20, 2014 / 6:33 AM / 3 years ago

Fitch Rates ANZ's Series 2014-3 Covered Bonds 'AAA'/Stable

(The following statement was released by the rating agency) SYDNEY, November 20 (Fitch) Fitch Ratings has assigned Australia and New Zealand Banking Group's (ANZ; AA-/Stable/F1+) Series 2014-3 EUR1bn mortgage covered bond a rating of 'AAA' with a Stable Outlook. This brings the total outstanding issuance to AUD16.8bn. The fixed rate bond is due in November 2019 and benefits from a 12-month extendable maturity. KEY RATING DRIVERS The rating is based on ANZ's Long-Term Issuer Default Rating (IDR) of 'AA-', a Discontinuity Cap (D-Cap) of 2 (high) and an asset percentage (AP) of 87.0%, which is lower than Fitch's breakeven AP for a 'AAA' rating of 89.5%. This supports a tested rating of 'AA' on a probability of default (PD) basis and a 'AAA' rating after giving credit for recoveries. The Outlook on the covered bonds reflects the Stable Outlook on ANZ's IDR. The 'AAA' breakeven AP of 89.5%, corresponding to a breakeven overcollateralisation (OC) of 11.7% is driven by the asset disposal loss component of 15.2% due to maturity mismatches and the refinancing assumptions applied to Australian residential mortgages, followed by the cover pool's credit loss of 4.2% in a 'AAA' scenario. The cash flow valuation component reduces the 'AAA' breakeven OC by 6.4% due to the longer weighted average life of the assets versus the liabilities and excess spread available under the programme. Maturity mismatches are significant. The weighted-average residual life of the assets is 16.5 years and the liabilities 4.4 years as a result of the issuance. As of end-September 2014, the cover pool consisted of 71,254 loans secured by first-ranking mortgages of Australian residential properties with a total outstanding balance of AUD19.5bn. Fitch's calculated 'AAA' expected loss is 4.0% on the residential mortgage assets, driven by the application of a minimum credit loss at 'AAA' in the agency's analysis. RATING SENSITIVITIES The 'AAA' rating would be vulnerable to downgrade if any of the following occurred: (i) ANZ's IDR was downgraded by two notches to 'A'; (ii) the D-Cap fell by two categories to 0 (full discontinuity); or (iii) the asset percentage (AP) that Fitch takes into account in its analysis, increased above Fitch's 'AAA' breakeven AP of 89.5%. Primary Analyst Claire Heaton Director +61 2 8256 0361 Fitch Australia Pty Ltd. Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst James Leung Director +61 2 8256 0322 Committee Chairperson Ben McCarthy Managing Director +61 2 8256 0388 The source of information used to assess these ratings was Australia and New Zealand Banking Group Limited. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public. Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0326, Email: Leni.Vu@fitchratings.com. Additional information is available at www.fitchratings.com Applicable criteria, 'Covered Bonds Rating Criteria', dated 8 August 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds ', dated 13 May 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2014; 'APAC Residential Mortgage Criteria', dated 23 June 2014; 'APAC Residential Mortgage Criteria Addendum - Australia', dated 23 June 2014; 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum' dated 4 February 2014; 'Global Criteria for Lenders' Mortgage Insurance in RMBS' dated 23 June 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here APAC Residential Mortgage Criteria here APAC Residential Mortgage Criteria Addendum-Australia here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here Global Criteria for Lenders' Mortgage Insurance in RMBS here Additional Disclosure Solicitation Status 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 FREE WEB SITE AT 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. 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. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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