Fitch Affirms 6 and upgrades 1 tranche of 3 REDS Trust Series RMBS Transactions; Outlook Stable

(The following statement was released by the rating agency)SYDNEY, February 22 (Fitch) Fitch Ratings has affirmed six tranches of three REDS Trust Series RMBS transactions and upgraded one. These transactions are securitisations of first-ranking Australian residential mortgages originated by Bank of Queensland (A-/Stable/F2).The rating actions are listed below.Series 2012-1E REDS Trust (REDS 2012-1E):AUD206.9m Class A1 (ISIN AU3FN0017281) notes affirmed at 'AAAsf'; Outlook Stable;AUD195.5m Class A2R (ISIN AU3FN0029583) notes affirmed at 'AAAsf'; Outlook Stable;AUD42.0m Class AB (ISIN AU3FN0017307) notes affirmed at 'AAAsf'; Outlook Stable; andAUD18.7m Class B (ISIN AU3FN0017315) notes upgraded to 'AAsf' from 'AA-sf''; Outlook Stable.Series 2013-1 REDS Trust (REDS 2013-1):AUD244.4m Class A1 (ISIN AU0000RDIHA7) notes affirmed at 'AAAsf'; Outlook Stable; andAUD170.0m Class A2 (ISIN AU0000RDIHB5) notes affirmed at 'AAAsf'; Outlook Stable;Series 2015-1 REDS Trust (REDS 2015-1):AUD658.9m Class A (ISIN AU3FN0026746) notes affirmed at 'AAAsf'; Outlook Stable.KEY RATING DRIVERSThe rating actions reflect Fitch's view that credit enhancement levels are able to support the notes' current ratings, in line with Fitch's expectations of Australia's economic conditions. The credit quality and performance of the loans in the respective collateral pools also remain in line with the agency's expectations. The upgrade of the Class B notes of REDS 2012-E reflects the build-up of credit enhancement sufficient to achieve higher ratings.As per the APAC Residential Mortgage criteria, the default model was not run for two out of the three transactions for this rating action as a review of pre-determined performance triggers indicates that the transactions display stable asset performance. The default model was run for the REDS 2012-1E transaction.At end-Jan 2016, the reported 30+ day arrears for REDS 2012-1E, REDS 2013-1 and REDS 2015-1 stood at 1.7%, 1.7% and 0.7% of the portfolio, respectively. At end-Jan 2016 the reported weighted average (WA) loan/value ratios (LVR) were low at 47.2%, 48.5% and 48.2%. The transactions have experienced low levels of losses, with all losses covered by lenders' mortgage insurance (LMI) or excess spread.All loans in the pool are covered by LMI, provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength rating: AA-/Stable) and Genworth Financial (N:GNW) Mortgage Insurance Pty Ltd (Insurer Financial Strength rating: A+/Stable).On 24 November 2015 the Class A2R notes were issued for the REDS 2012-1E to refinance the soft bullet Class A2 notes (the Class A2A and Class A2S notes). The Class A2 notes were repaid from the proposed issuance of Class A2R notes.RATING SENSITIVITIES The initial sequential pay-down has resulted in an increase in credit enhancement levels for the senior notes of all the transactions, with the 'AAAsf' rated notes able to withstand multiples of the latest reported arrears. The ratings are not expected to be affected by modest changes in performance.The ratings of all the transactions' Class A and AB notes are independent of downgrades to the LMI providers' ratings. The Class B notes of REDS 2012-1E are LMI dependent.For the REDS 2012-1E transaction, Fitch's 'AAAsf' breakeven stressed default rate is 6.0%. The Class A notes can withstand an additional 64.2% in defaults at Fitch's 'AAAsf' loss severity. The Class AB notes can withstand an additional 19.4% in defaults at Fitch's 'AAAsf' loss severity. At the 'AAsf' breakeven stressed default rate of 5.1%, the Class B notes can withstand an additional 6.1% at Fitch's 'AAsf' loss severity. DUE DILIGENCE USAGE No third party due diligence was provided or reviewed in relation to this rating action.DATA ADEQUACY Fitch conducted a file review of 10 sample loan files focusing on the underwriting procedures conducted by Bank of Queensland compared to its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.A comparison of the transaction's representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links shown under Related Research below.Contacts: Lead Surveillance AnalystKatie BrookesAnalyst+612 82560 320Fitch Australia Pty Ltd. Level 15, 77 King St, Sydney, NSW 2000, AustraliaCommittee Chairperson Natasha VojvodicSenior Director+612 82560 350Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.Additional information is available at www.fitchratings.com.Sources of Information:The source of information used to assess these rating was the servicer, Bank of Queensland. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.Applicable 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=744175Global 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=867952Related Research Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=799248Series 2003-1 REDS Trust (Australia RMBS) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=166358Series 2012-1E REDS Trust https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695690Series 2012-1E REDS Trust - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695753Series 2013-1 REDS Trust - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715666Series 2015-1 REDS Trust https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863698Series 2015-1 REDS Trust - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863699Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=999832Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999832Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL 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.