Fitch Affirms Suncorp-Metway Limited's Mortgage Covered Bonds at 'AAA'; Outlook Stable <Origin Href="QuoteRef">SUN.AX</Origin>

(The following statement was released by the rating agency)SYDNEY, April 06 (Fitch) Fitch Ratings has affirmed Suncorp-Metway Limited's (SML, A+/Stable/F1) AUD2.65bn of outstanding mortgage covered bonds at 'AAA' with a Stable Outlook.KEY RATING DRIVERSThe rating is based on SML's Long-Term Issuer Default Rating (IDR) of 'A+', an unchanged Discontinuity Cap (D-Cap) of 4 notches; and the asset percentage (AP) of 89.29% used in the asset coverage test. The AP relied on in the analysis is lower than Fitch's 'AAA' breakeven AP of 91%, which supports a 'AA' tested rating on a probability of default (PD) basis and a 'AAA' rating after giving credit for recoveries following default of the covered bonds. The Outlook on the covered bonds reflects the Stable Outlook on SML's IDR.The 'AAA' breakeven AP of 91% corresponding to a breakeven overcollateralisation (OC) of 9.9% is driven by the asset disposal loss component of 17.8% due to the large maturity mismatches and the mortgage refinancing assumptions applied to Australian residential mortgages, followed by the cover pool's credit loss of 2.9% in a 'AAA' scenario. The cash flow valuation component reduces the 'AAA' breakeven OC by 10.2% due to the longer weighted average life of the assets versus the liabilities and the excess spread available under the programme. The 'AAA' breakeven AP has changed from last analysis, as Fitch has fine-tuned its approach to modelling the pro-rata asset sales clause, which is used to restrict the sale of assets in the programme after an issuer event of default, and bond extension periods. The unchanged D-Cap of 4 notches reflects Fitch's moderate risk assessment for four out of the five components assessed. The remaining component - asset segregation - has a very low risk assessment.Maturity mismatches remain significant in the programme. The weighted-average residual life of the assets has decreased from 14 to 13.9 years since the last analysis, and that of the liabilities decreased from 3.1 years to 2.1 years.As of 29 February 2016, the cover pool consisted of 13,941 loans secured by first-ranking mortgages of Australian residential properties with a total outstanding balance of AUD2.9bn. Fitch expects that in a 'AAA' scenario, the expected loss on the assets in the cover pool to be 2.8%, giving credit to lenders mortgage insurance.RATING SENSITIVITIESThe 'AAA' rating would be vulnerable to downgrade if any of the following occurred: (i) SML's IDR was downgraded by three notches to 'BBB+'; (ii) the D-Cap fell by three notches to 1 (Very High); or (iii) the asset percentage (AP) that Fitch takes into account in its analysis, increased above Fitch's 'AAA' breakeven AP of 91%.Fitch's 'AAA' breakeven AP for the covered bond rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the 'AAA' breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time.More details on the portfolio and Fitch's analysis will be available in a rating report, which will shortly be available at www.fitchratings.com.Contact: Primary AnalystClaire HeatonSenior Director+61 2 8256 0361Fitch Australia Pty Ltd.Level 15, 77 King Street, Sydney NSW 2000 Secondary AnalystJames LeungDirector+61 2 8256 0322 Committee ChairpersonNatasha VojvodicSenior Director+61 2 8256 0350Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.The source of information used to assess these ratings was Suncorp-Metway Limited. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public.Additional information is available on www.fitchratings.comApplicable Criteria APAC Residential Mortgage Criteria (pub. 23 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867437Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175Covered Bonds Rating Criteria (pub. 11 Mar 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878761Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum (pub. 23 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871331Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 22 Dec 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=840189Fitch's Mortgage Covered Bond Refinancing Stresses - Excel File (pub. 12 Feb 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877778Global Criteria for Lenders’ Mortgage Insurance in RMBS (pub. 23 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865195Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1002106Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002106Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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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.