Fitch: No Rating Impact from Planned Switch to Soft Bullet on WBC Covered Bonds

(The following statement was released by the rating agency)SYDNEY, February 29 (Fitch) Fitch Ratings says Westpac Banking Corporation's (WBC; AA-/Stable/F1+) proposal to convert existing hard-bullet covered bonds to soft bullets with an extendible maturity of 12 months will have no immediate rating impact on the bonds. The proposed change is contingent on investor approval.WBC is seeking investor consent for the implementation of a 12-month extendable maturity (soft bullet) for all outstanding covered bonds issued with a fixed scheduled maturity date (hard bullet), constituting 23.1% of the outstanding covered bond balance. In Fitch's view, the proposed change would reduce liquidity risk for the covered bond programme as a whole. Nevertheless, we do not expect the change to affect the ratings of the covered bonds, which are 'AAA/Stable'.In a programme that has both hard- and soft-bullet bonds outstanding, Fitch looks at the weakest link in its assessment of the liquidity gaps and systemic risk in its Discontinuity Cap (D-Cap) analysis. Currently this is driven by the 12-month pre-maturity test cure period provisions on the hard-bullet covered bonds. Extendible maturities provide a period during which liquidity can be raised from the cover pool should recourse switch from the issuer. The current D-Cap assigned to the programme is '3' notches (moderate high risk). Should the proportion of outstanding hard-bullet covered bonds subsequently fall to a sufficiently low level after the investor solicitation process, resulting in this factor not being the primary driver of a cross-acceleration of the covered bonds in a default scenario, Fitch may increase the D-Cap. Such changes have the potential to positively impact the break-even asset percentage, as the asset/liability maturity mismatches and the need to liquidate, would decrease slightly when the maturity extension is taken into account. However, in the case of WBC's programme, it is unlikely that there will be any change in the break-even asset percentage as the programme continues to show significant asset/liability mismatches. The weighted life of the assets is 15 years compared with 3.8 years for the covered bonds. Fitch will make further comment once the investor solicitation process is finalised and amendments, if any, are put in place.Contact: Claire HeatonSenior Director+61 2 8256 0361Fitch Australia Pty Ltd.Level 15, 77 King Street, Sydney NSW 2000James LeungDirector+61 2 8256 0322Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@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 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.