Fitch Affirms Seven National RMBS Trust Transactions; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-17 August 2020: Fitch Ratings has affirmed the ratings for 14 classes of notes from seven National RMBS Trust transactions. The transactions consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans. The mortgages for National RMBS Trust 2015-1, National RMBS Trust 2015-2, National RMBS Trust 2016-1, National RMBS Trust 2018-1 and National RMBS Trust 2018-2 were originated by National Australia Bank Limited (NAB, A+/Negative/F1) and the notes were issued by Perpetual Trustee Company Limited in its capacity as trustee. The mortgages for National RMBS Trust 2012-1 and National RMBS Trust 2012-2 were originated via NAB's Advantedge Financial Services Pty Ltd distribution channel and the notes were issued by Perpetual Trustees Victoria Limited. The social and market disruption caused by the coronavirus pandemic and the related containment measures did not negatively affect the ratings because there is sufficient credit enhancement to offset the effects under Fitch's base-case scenario and adequate liquidity to support the current ratings. The Stable Outlook is based on the notes' liquidity support and ability to withstand the sensitivity to higher defaults stemming from the pandemic. National RMBS Trust 2015-1 ----A AU0000NAJHA0; Long Term Rating; Affirmed; AAAsf; RO:Sta ----B AU3FN0026506; Long Term Rating; Affirmed; AA+sf; RO:Sta National RMBS Trust 2018-2 ----A1-A AU3FN0044079; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A1-B ; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A2 AU3FN0044095; Long Term Rating; Affirmed; AAAsf; RO:Sta National RMBS Trust 2012-1 ----A AU3FN0016549; Long Term Rating; Affirmed; AAAsf; RO:Sta National RMBS Trust 2015-2 ----A AU3FN0031068; Long Term Rating; Affirmed; AAAsf; RO:Sta National RMBS Trust 2016-1 ----A AU3FN0031035; Long Term Rating; Affirmed; AAAsf; RO:Sta ----B AU3FN0031043; Long Term Rating; Affirmed; AA+sf; RO:Sta National RMBS Trust 2012-2 ----A1 AU0000NAHHA4; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A2-R AU3FN0029799; Long Term Rating; Affirmed; AAAsf; RO:Sta National RMBS Trust 2018-1 ----A1-A AU3FN0040614; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A1-G AU3FN0040622; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A2 AU3FN0040630; Long Term Rating; Affirmed; AAAsf; RO:Sta KEY RATING DRIVERS Pandemic-Related Economic Shock: Fitch has made assumptions about the spread of the coronavirus and the economic impact of the related containment measures. As a base-case (most likely) scenario, Fitch assumes a global recession in 1H20, driven by sharp economic contractions in major economies with a rapid spike in unemployment, followed by a recovery that begins in 3Q20 as the health crisis subsides. In a downside (sensitivity) scenario, Fitch assesses a more severe and prolonged period of stress with recovery to pre-crisis GDP levels delayed until around the middle of the decade. Coronavirus-Related Impact: Measures put in place to limit the spread of the virus are affecting Australia's economy, with many businesses continuing to experience a decline in income. We expect these measures to affect the performance of mortgages, but there should be no rating impact on the notes, as the ratings can absorb Fitch's base-case scenario of the pandemic. In addition, the rated notes have subordination that is approximately between 1.1x (Trust 2015-2) and 5.1x (Trust 2015-1) the portfolio loss at the affirmed rating levels. Commentary describing Fitch's credit views and analytical approach as a consequence of the coronavirus is available in the reports: - "Global Economic Outlook: June 2020 - Coronavirus Disruption Easing" (www.fitchratings.com/site/re/10127783), published on 29 June 2020; - "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update" (www.fitchratings.com/site/re/10120570), published on 29 April 2020; and - "Global SF Rating Assumptions Updated to Reflect Coronavirus Risk" (www.fitchratings.com/site/pr/10117224), published on 3 April 2020. Analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the following commentary: - "Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS" (www.fitchratings.com/site/pr/10120792), published on 5 May 2020; and - "Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects" (www.fitchratings.com/site/pr/10130287), published on 28 July 2020. Liquidity Risk from Payment Holidays: We have reviewed the ability of the transactions to survive a significant proportion of borrowers taking a payment holiday. The transactions have basis and fixed-rate swaps that will pay the trust the bank-bill swap rate plus the weighted-average (WA) margin on all notes plus a fixed margin that is greater than the senior expenses under each trust. We do not expect any draws on liquidity support while the swaps are in place as the trusts are required to pay actual collections received to the swap provider. The transactions also benefit from liquidity facilities that are sufficient to cover more than six months of required payments at the current bank-bill spot rate should there be no principal or interest collections, which is well above the proportion of mortgages on payment holiday arrangements of between 5.6% (Trust 2012-2) and 10.5% (Trust 2015-2) as of end-July 2020. The transactions can also use any principal payments received to pay interest if not all borrowers take up payment holidays. Operational Risk: NAB is an authorised deposit-taking institution headquartered in Melbourne. Fitch undertook an operational review and found that the operations of the servicer were consistent with market standards and that there had been no material changes that may affect the ongoing ability to undertake administration, origination and collection activities. We do not expect the servicer's operations to be disrupted by the pandemic, as staff members are able to work remotely and have access to the office, if needed. Asset Analysis: The asset model has not been run for these transactions, in accordance with Fitch's criteria and after the review of payment holiday arrangements where the 30-59 days arrears status is applied to the proportion of mortgages with payment holiday terms. Trust 2015-1 had the highest arrears at end-June 2020 (30+ days arrears of 2.73% and 90+ days arrears of 1.69%) and the arrears for the other transactions ranged from 0.61% to 2.01% for 30+ days and 0.26% to 1.35% for 90+ days. The trusts report non-coronavirus-related hardships in their arrears. All transactions' arrears except that of Trust 2015-2 tracked above Fitch's 30+ and 90+ day 1Q20 Dinkum RMBS Index of 1.16% and 0.57%, respectively. The high arrears ratios were mainly due to low bond factors as evident from the relatively stable arrears balances. Trust 2012-1, 2012-2, 2015-1, 2015-2 and 2016-1 had realised cumulative gross losses of no more than 0.11%, which were covered by lenders' mortgage insurance (LMI) and excess spread. Trust 2018-1 and 2018-2 have had no losses since closing. Trust 2012-1 and 2015-2 have revolving periods ending in September 2027 and August 2026, respectively. Fitch is of the view that the risks associated with the long revolving periods are mitigated by a stable product history, stable portfolio composition and eligibility criteria that maintain the portfolio characteristics during the revolving period. Liability Analysis: Cash flow analysis has not been performed for these transactions as cash flow distributions have been within Fitch's expectations, there have been no material changes to cash flow assumptions, and all rated notes are rated at the highest possible level (AAAsf or constrained by concentration test). Macroeconomic Factors: Fitch expects mortgage performance to deteriorate in the near term, but to continue to support the Stable Outlook on the rated notes. Fitch forecasts Australia's GDP to contract by 2.7% in 2020, with an unemployment rate of 7.1%. This will be partially offset by a low official cash rate of 0.25% and the application of both central bank and government stimulus measures. Fitch expects GDP growth to bounce back to 3.1% in 2021 and for the unemployment rate to fall to 6.7% in the medium term. RATING SENSITIVITIES Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case and are likely to result in a decline in credit enhancement and remaining loss-coverage levels available to the notes. Decreased credit enhancement may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Factors that could, individually or collectively, lead to positive rating action/upgrade: All rated notes are rated at the highest possible level (AAAsf or constrained by the concentration test). The ratings cannot be upgraded. Factors that could, individually or collectively, lead to negative rating action/downgrade: A longer pandemic than Fitch expects that leads to deterioration in macroeconomic fundamentals and consumers' financial position in Australia beyond Fitch's baseline scenario. Available credit enhancement cannot compensate for higher credit losses and cash flow stresses, all else being equal. Fitch conducted sensitivity analysis by increasing gross default levels and decreasing recovery rates over the life of the transactions. The class A notes of Trust 2015-2 and the class B notes of Trust 2015-1 and 2016-1 are LMI dependent and therefore sensitive to downgrades in the LMI providers' ratings. The remaining ratings are independent of downgrades to the LMI providers' ratings. Coronavirus Downside Scenario Sensitivity: Under Fitch's downside scenario, re-emergence of infections in the major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets. The 'AAAsf' rated notes have subordination that is at least 1.1x the 'AAAsf' portfolio loss and the 'AA+sf' rated notes have subordination that is at least 1.6x 'AA+sf' portfolio loss and can absorb Fitch's downside scenario of the coronavirus-related impact. For more information on rating sensitivities, please refer to the: - rating action commentary for Trust 2012-1, published 2 February 2018, available at https://www.fitchratings.com/site/pr/10018847 - new issue report for National RMBS Trust 2012-2, published 13 December 2012, available at https://www.fitchratings.com/site/re/697056 - rating action commentary for Trust 2015-1, published 16 January 2019, available at https://www.fitchratings.com/site/pr/10059173 - rating action commentary for Trust 2015-2, published 2 February 2018, available at https://www.fitchratings.com/site/pr/10018847 - rating action commentary for Trust 2016-1, published 25 October 2018, available at https://www.fitchratings.com/site/pr/10047635 - presale report for Trust 2018-1, published on 10 January 2018, available at https://www.fitchratings.com/site/re/916095 - presale report for Trust 2018-2, published 9 December 2018, available at https://www.fitchratings.com/site/re/10054125 Best/Worst Case Rating Scenario International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. 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 portfolio information as part of its ongoing monitoring. Prior to Trust 2012-1, 2012-2, 2015-1, 2015-2 and 2016-1 closing, Fitch did not review the results of a third-party assessment conducted on the asset portfolio information. Prior to Trust 2018-1 and 2018-2 closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was available for these transactions. As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of NAB'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. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. ESG Considerations The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. Contacts: Surveillance Rating Analyst Eugene Wang, Senior Analyst +61 2 8256 0373 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 2000 Committee Chairperson Chris Stankovski, Senior Director +61 2 8256 0341 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. 27 May 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10123329) Global Structured Finance Rating Criteria (pub. 17 Jun 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10126475) RMBS Lenders' Mortgage Insurance Rating Criteria (pub. 12 Mar 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10110807) Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 29 Jan 2020) (https://www.fitchratings.com/site/re/10108544) Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 29 Jan 2020) (https://www.fitchratings.com/site/re/10108546) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10132829) Solicitation Status (https://www.fitchratings.com/site/pr/10132829#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10132829#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10132829#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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