Fitch: APRA Proposals Bring Australian Master Trusts One Step Closer

(The following statement was released by the rating agency)SYDNEY, December 03 (Fitch) The Australian Prudential (L:PRU) Regulation Authority's (APRA) revised discussion paper on its prudential securitisation framework (APS120) is now in a form which makes future RMBS and ABS Master Trust issuance from Australia a distinct possibility. The discussion paper, a revision of the proposal issued in 2014, contemplates allowing early amortisation event triggers, date-based call options and the seller interest to vary in size during the revolving period. These proposals address many of the issues raised by Fitch in the agency's comment "Fitch: APRA Proposals Would Make Australian Master Trusts Unworkable" issued on 1 May 2014.APRA's discussion paper, released on 26 November 2015, now proposes to allow early amortisation provisions as long as principal cash flows are allocated on a pro-rata basis between the securitisation (investors' interest) and the originating ADI (seller's interest). The change reflects APRA's view that an originating institution should not be subordinated, in terms of taking losses, to the interests of investors at any time in the life of the transaction.The proposed framework is different to UK Master Trust structures where the principal cash flows to the seller's interest can be subordinated in certain circumstances. This means that investors in Australian Master Trusts will not have the same protection as investors in the UK version, while investors in the proposed Australian Master Trusts can expect to be no worse off than their current position in traditional standalone RMBS structures. The potential difference in credit risk for investors in Australian Master Trust transactions is most likely to be focussed on the revolving nature of the underlying portfolio and the ability for the portfolio to change over time. Fitch expects this risk to be mitigated by portfolio-eligibility criteria as well as early amortisation triggers, and Fitch's ratings assumptions which are likely to assume the portfolio migrates to an inferior position over the life of the transaction. APRA's proposal also allows for the inclusion of date-based calls in funding-only securitisations, provided that certain conditions are met. This will allow notes with bullet maturities to be issued, which is a common feature of master trusts in other parts of the world. The presence of date-based calls will not affect Fitch's rating analysis, as Fitch's ratings address the repayment of principal by the legal final maturity.APRA's new proposal envisages the seller interest being subordinate to the investor's interest during the revolving period, and to facilitate structural cash flow only. The seller's interest cannot be subordinated to the investor's interest in terms of losses. Fitch believes that this will be beneficial from a cash flow point of view, allowing master trusts the flexibility to respond to short-term liquidity demands such as bullet maturities.The discussion paper is open for comment until 1 March 21016, and is currently slated for implementation from 1 January 2018.Contacts: James ZanesiDirectorStructured Finance+61 2 8256 0306Fitch Australia Pty Ltd., Level 15, 77 King Street, Sydney NSW 2000Natasha VojvodicSenior DirectorStructured Finance+612 8256 0350Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.Additional information is available on www.fitchratings.comALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.