Fitch Affirms Seven Tranches in Three RESIMAC Bastille Trust Transactions; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-07 September 2020: Fitch Ratings has affirmed seven tranches from three RESIMAC Bastille Trust - RESIMAC Series transactions, which are securitisations of first-ranking Australian conforming and non-conforming residential mortgages originated by RESIMAC Limited. The notes were issued by Perpetual Trustee Company Limited in its capacity as trustee of the trusts. The social and market disruption caused by the coronavirus pandemic and related containment measures have not negatively affected the ratings, as there is sufficient credit enhancement to offset the effects under Fitch's base-case scenario and adequate liquidity to support the current ratings. RESIMAC Bastille Trust - RESIMAC Series 2020-1NC ----A1 AU3FN0055125; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A2 AU3FN0055133; Long Term Rating; Affirmed; AAAsf; RO:Sta ----AB AU3FN0055141; Long Term Rating; Affirmed; AAAsf; RO:Sta RESIMAC Bastille Trust - RESIMAC Series 2017-1NC ----A1 AU3FN0038659; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A2 AU3FN0038667; Long Term Rating; Affirmed; AAAsf; RO:Sta RESIMAC Bastille Trust - RESIMAC Series 2019-1NC ----A1 76119UAA9; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A2 AU3FN0050845; Long Term Rating; Affirmed; AAAsf; RO:Sta KEY RATING DRIVERS Coronavirus-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 the global recession in 1H20, driven by sharp economic contractions in major economies with a rapid spike in unemployment, will be followed by a recovery that begins in 3Q20 as the health crisis subsides. As a downside (sensitivity) scenario in the Rating Sensitivities section below, Fitch considers 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 to limit the spread of the virus are affecting Australia's economy, with many businesses continuing to experience lower income. We expect these measures to affect mortgage performance, but there should be no rating impact on the notes, as the ratings can absorb Fitch's base-case pandemic scenario. The rated notes have subordination ranging between 1.04x (class AB notes from RESIMAC Bastille Trust - RESIMAC Series 2020-1NC) and 2.93x (class A1 notes from RESIMAC Bastille Trust - RESIMAC Series 2017-1NC) of the 'AAAs' portfolio loss. Commentary describing Fitch's credit views and analytical approach as a consequence of the coronavirus is available in the following reports: - "Global Economic Outlook: June 2020 - Coronavirus Disruption Easing" at www.fitchratings.com/site/re/10127783, published June 2020; - "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update" at www.fitchratings.com/site/re/10120570, published April 2020; and - "Global SF Rating Assumptions Updated to Reflect Coronavirus Risk" at www.fitchratings.com/site/pr/10117224, published 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" at www.fitchratings.com/site/pr/10120792, published May 2020; and - "Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects" at www.fitchratings.com/site/pr/10130287, published July 2020. Liquidity Risk from Payment Holidays: We have reviewed the transactions' ability to survive a significant proportion of borrowers taking up payment holidays. RESIMAC 2017-1NC, RESIMAC Bastille Trust - RESIMAC Series 2019-1NC and RESIMAC 2020-1NC benefit from liquidity facilities sized at 1.5% of the outstanding invested note balance, which are sufficient to cover at least eight months of required payments at the current bank-bill spot rate if 100% of the pool are under payment holiday arrangements. This is well above the proportion of mortgage on payment holiday arrangements of 28.1%, 30.1% and 14.6%, respectively, as at end-July 2020. The transactions can also use any principal payments received to pay interest if there are principal collections. Operational Risk: RESIMAC is a non-bank financial institution, with a history dating back to 1985. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with other Australian non-bank lenders. Collection and servicing activities have not been disrupted by the pandemic, as staff can work remotely and systems are accessible. Asset Analysis: Asset models were not re-run for the transactions, in accordance with Fitch's criteria and post-review of payment-holiday arrangements, where the 30-59 days arrears status is applied to the proportion of mortgages on payment-holiday terms. Arrears of 30+ days for RESIMAC 2017-1NC, RESIMAC 2019-1NC and RESIMAC 2020-1NC were 1.28%, 0.58% and 0.08%, respectively, while 90+ day arrears were 0.95%, 0.47% and 0%, respectively, at end-July 2020. RESIMAC's arrear figures include loans with non-pandemic-related hardship status. The 30+ and 90+ day arrears tracked below Fitch's 1Q20 Non-Conforming RMBS Index of 5.09% and 1.91%, respectively. RESIMAC 2017-1NC has had one loss since closing, which was covered by excess spread, while RESIMAC 2019-1NC and RESIMAC 2020-1NC have not had any losses. Liability Analysis: Cash-flow analysis has not been performed for the transactions, in accordance with Fitch's criteria, as all rated notes are rated at the highest possible level, cash-flow distributions have been within Fitch's expectations and there have been no material changes to cash-flow assumptions since the last cash-flow analysis at closing. Macroeconomic Factors: Fitch expects mortgage performance to deteriorate in the near term, but to continue to support the Stable Outlook on the notes. Fitch forecasts Australia's GDP will contract by 2.7% in 2020, with the unemployment rate at 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 the unemployment rate to fall to 6.7%. Stable Outlook: The Stable Outlook on the notes reflects liquidity support and the ability to withstand the sensitivity to higher defaults stemming from the pandemic. 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: The rated notes are at 'AAAsf', which is the highest level on Fitch's scale. 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. All rated notes are independent of downgrades to the LMI providers' ratings. Coronavirus Downside Scenario Sensitivity Under Fitch's downside scenario, re-emergence of infections in 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 of between 1.04x (class AB notes from RESIMAC 2020-1NC) and 2.93x (class A1 notes from RESIMAC 2017-1NC) of the 'AAAsf' portfolio loss and can absorb Fitch's downside scenario of the coronavirus-related impacts. For more information on rating sensitivities, please refer to the following: - presale report for RESIMAC 2017-1NC, published on 15 October 2017, available at www.fitchratings.com/site/re/904997 - presale report for RESIMAC 2019-1NC, published on 14 October 2019, available at www.fitchratings.com/site/re/10091832 - presale report for RESIMAC 2020-1NC, published on 20 July2020, available at www.fitchratings.com/site/re/10129467 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 portfolios as part of its ongoing monitoring. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of RESIMAC'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 portfolios. Fitch sought to receive a third-party assessment conducted on the asset-portfolio information prior to the closing of the transactions, but none was made available. Overall, Fitch's assessment of the information on the asset pools 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: Secondary Rating Analyst Eugene Wang, Senior Analyst +61 2 8256 0373 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/10134677) Solicitation Status (https://www.fitchratings.com/site/pr/10134677#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10134677#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10134677#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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