Fitch Affirms Pepper Prime 2013-1 Trust; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-June 08: Fitch Ratings has affirmed the Pepper Prime 2013-1 Trust transaction, which consists of notes backed by a pool of first-ranking Australian residential mortgage loans. The mortgages were originated by General Electric (NYSE:GE) Capital Corporation and acquired by Pepper Australia Pty Limited (Pepper) in August 2011. The notes were issued by Permanent Custodians Limited in its capacity as trustee of Pepper Prime 2013. The rating actions are as follows: AUD65.8 million Class AR-u (ISIN AU3FN0027942) notes affirmed at 'AAAsf'; Outlook Stable AUD43.9 million Class A-a (ISIN AU3FN0019675) notes affirmed at 'AAAsf'; Outlook Stable AUD13.0 million Class AB (ISIN AU3FN0019683) notes affirmed at 'AAAsf'; Outlook Stable KEY RATING DRIVERS Macroeconomic Factors: Fitch expects mortgage performance in Australia to remain stable in 2018, supported by the continuation of low interest rates, sustained economic growth driven by a stable forecast GDP growth of 2.7% in 2019 and stable labour markets. Operational Risk: Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable to other lenders. Asset Analysis: In accordance with Fitch's criteria, the default model was not re-run for the transaction as the outstanding ratings are 'AAAsf', the transaction does not have a revolving period and a review of pre-determined performance triggers indicates that the transaction displays stable asset performance. By 30 April 2018, 30+ days and 90+ days arrears have increased to 4.1% and 1.6%, respectively, compared with 3.8% and 1.4% a year earlier. Arrears are higher than Fitch's 1Q18 Dinkum RMBS Index of 1.13% and 0.52%, respectively, due to a smaller outstanding loan portfolio and a higher portion of low-documentation loans than comparable transactions. The arrears balance remains relatively stable. The entire portfolio is covered by lenders' mortgage insurance (LMI) and of the 13 cumulative claims submitted throughout the transaction life, 81.5% were covered by LMI and the remainder absorbed by excess spread. The transaction generates strong excess spread. LMI is provided by Genworth Financial (NYSE:GNW) Mortgage Insurance Pty Limited (Insurer Financial Strength rating: A+/Stable) and QBE Lenders Mortgage Insurance Limited (Insurer Financial Strength rating: AA-/Stable). Cash Flow Analysis: The cash flow model was not run in line with the APAC Residential Mortgage Rating Criteria as there have been no changes to transaction structure or asset performance. RATING SENSITIVITIES Fitch does not expect the ratings to be affected by any foreseeable change in performance. The prospect of a downgrade is remote, given the level of subordination to all rated notes, pool performance and adequate excess spread. The pro-rata trigger requirements have been met and principal is being repaid pari-passu to all notes, except the unrated C Note, which will receive no principal until the notes senior to it are fully repaid. This mechanism serves to mitigate tail risk. The rated notes are independent of downgrades to 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 pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio as part of its ongoing monitoring. As part of its on-going monitoring, Fitch conducted a file review of a small targeted sample of Pepper'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: Transaction reporting data provided by Pepper as at 30 April 2018 The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Lead Surveillance Analyst Marija Buzevska Analyst +61 2 8256 0340 Fitch Australia Pty Ltd. Level 15, 77 King St Sydney, NSW 2000 Committee Chairperson Natasha Vojvodic Senior Director +61 2 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 14 Jul 2017) https://www.fitchratings.com/site/re/901072 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. 23 May 2017) https://www.fitchratings.com/site/re/898537 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10033864 Solicitation Status https://www.fitchratings.com/site/pr/10033864#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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