Fitch Affirms 7 Classes in Four Series REDS Trust Transactions

(The following statement was released by the rating agency) Fitch Ratings-Sydney-December 05: Fitch Ratings has affirmed seven classes of notes from four Series REDS Trust transactions. The transactions consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans. All mortgages were originated by the Bank of Queensland Limited (BQL; A-/Stable) and the notes were issued by Perpetual Trustee Company Limited in its capacity as trustee. The four transactions are: Series 2013-1 REDS Trust (REDS 2013-1) Series 2015-1 REDS Trust (REDS 2015-1) Series 2017-1 REDS Trust (REDS 2017-1) Series 2018-1 REDS Trust (REDS 2018-1) A full list of rating actions follows at the end of this rating action commentary. KEY RATING DRIVERS Operational Risk: BQL is an authorised deposit-taking institution that has its headquarters in Brisbane, Queensland. Fitch undertook an onsite operational review and found that the operations of the servicer were comparable with market standards and that there were no material changes that may affect BQL's ongoing ability to undertake administration and collection activities. BQL's collection timelines, policies and procedures are in line with other conforming lenders in Australia, as evident from the historical performance of Series REDS Trust transactions. Asset Analysis: In accordance with Fitch's criteria, the asset model was not re-run for any of the transactions, as all rated notes are rated at the highest possible level; asset composition and performance have not deteriorated materially since the last asset model and there have been no material changes to asset assumptions since the last asset analysis. At end-September 2018, 30+ and 90+ day arrears for REDS 2013-1 and REDS 2015-1 tracked above Fitch's 3Q18 Dinkum RMBS Index of 1.04% and 0.53%, respectively; however the rated notes for both transactions now have at least twice the credit enhancement at closing and sufficient excess spread to cover losses. REDS 2017-1's and REDS 2018-1's arrears tracked below the Dinkum. The 30+ day arrears for all transactions ranged from 0.22% (REDS 2018-1) to 2.96% (REDS 2013-1), while 90+ day arrears ranged from 0.43% (REDS 2017-1) to 1.68% (REDS 2013-1). REDS 2018-1 had no 90+ day arrears. BQL advised that REDS 2013-1, REDS 2015-1, REDS 2017-1 and REDS 2018-1 had hardship loans of 0.63%, 0.34%, 0.13% and 0.16%, respectively, that were not included in the arrears figures. Transaction performance has been strong, with all losses covered by lenders' mortgage insurance (LMI), excess spread or BQL. REDS 2013-1 had the highest losses since closing of AUD0.8 million at end-September 2018, while REDS 2015-1 had the lowest losses of AUD118,000. REDS 2017-1 and REDS 2018-1 closed in February 2017 and May 2018 respectively, and had no losses. REDS 2018-1 has 16.3% LMI coverage while the remaining trusts have 100% LMI coverage on their loans. LMI is provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength Rating: AA-/Stable) and Genworth Financial (NYSE:GNW) Mortgage Insurance Pty Limited (Insurer Financial Strength Rating: A+/Stable). Excess spread for all transactions ranged between 0.8% and 1.0% for the past 12 months. Liability Analysis: Cash flow analysis was not performed for any of the transactions, as all rated notes are rated at the highest possible level; cash flow distribution has been within our expectations since the last cash flow model analysis and there have been no material changes to cash flow assumptions. Macroeconomic Factors: Fitch expects stable mortgage performance, supported by sustained economic expansion in Australia. The economic outlook is driven by Fitch's forecast for stable GDP growth of 2.8% and one 25bp cash rate increase in 2019. All transactions have significant concentrations of loans in Queensland and our macroeconomic outlook for Queensland is stable, with gross state product expected to strengthen by 3.0% in the financial year ending June 2019. RATING SENSITIVITIES Fitch does not expect the ratings to be affected by any foreseeable change in performance. The prospect of downgrade is remote, given the level of subordination available to all rated notes, pool performance and adequate excess spread. All the rated notes of the REDS transactions are LMI independent and therefore insensitive to downgrades in the LMI providers' ratings. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolios as part of its ongoing monitoring. Prior to REDS 2013-1 and REDS 2015-1 closing, Fitch did not review the results of a third-party assessment conducted on the asset portfolio information. Prior to REDS 2017-1 closing, Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Prior to REDS 2018-1 closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available to Fitch for this transaction. As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of BQL's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by BQL at end-September 2018 Transaction reporting data provided by BQL at end-September 2018 Loan enforcement details provided by BQL at end-September 2018 The rating actions are as follows (as of end-September 2018 reporting): REDS 2013-1 AUD111.9 million Class A1 (AU0000RDIHA7) notes affirmed at 'AAAsf'; Outlook Stable and AUD103.7 million Class A2R (AU3FN0032157) notes affirmed at 'AAAsf'; Outlook Stable REDS 2015-1 AUD314.9 million Class A (AU3FN0026746) notes affirmed at 'AAAsf'; Outlook Stable REDS 2017-1 AUD629.7 million Class A1 (AU3FN0034146) notes affirmed at 'AAAsf'; Outlook Stable and AUD25.7 million Class A2 (AU3FN0034153) notes affirmed at 'AAAsf'; Outlook Stable REDS 2018-1 AUD841.9 million Class A1 (AU3FN0042610) notes affirmed at 'AAAsf'; Outlook Stable and AUD26.0 million Class A2 (AU3FN0042628) notes affirmed at 'AAAsf'; Outlook Stable Contacts: Lead Surveillance Analyst Tim Groombridge Associate Director +61 2 8256 0339 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Committee Chairperson Natasha Vojvodic Senior Director +61 2 8256 0350 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 22 Oct 2018) https://www.fitchratings.com/site/re/10046448 Global Structured Finance Rating Criteria (pub. 15 May 2018) https://www.fitchratings.com/site/re/10029600 RMBS Lenders' Mortgage Insurance Rating Criteria (pub. 03 Apr 2018) https://www.fitchratings.com/site/re/10025397 Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 01 Aug 2018) https://www.fitchratings.com/site/re/10039504 Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 01 Aug 2018) https://www.fitchratings.com/site/re/10039505 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10054263 Solicitation Status https://www.fitchratings.com/site/pr/10054263#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. 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. Copyright © 2018 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes 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 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.