(The following statement was released by the rating agency) Fitch Ratings-Sydney-May 13: Fitch Ratings has affirmed three note classes from three SMHL Series transactions, which consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans originated by Members Equity Bank Limited (ME Bank). The notes were issued by Perpetual Limited in its capacity as trustee. The social and market disruption caused by the coronavirus and the related containment measures did not negatively affect the ratings because there is sufficient credit enhancement to Fitch's base-case scenario of the impact and adequate liquidity to support the current ratings. SMHL Series Securitisation Fund 2013-1 ----A AU3FN0020665; Long Term Rating; Affirmed; AAAsf; RO:Sta SMHL Series Securitisation Fund 2014-1 ----A AU3FN0024055; Long Term Rating; Affirmed; AAAsf; RO:Sta SMHL Series 2018-1 Fund ----A AU3FN0044798; 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 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. As a downside (sensitivity) scenario in the rating sensitivities section below, Fitch takes into consideration a more severe and prolonged period of stress with recovery to pre-crisis GDP levels delayed until around the middle of the decade. Impact of Coronavirus: The measures put in place to limit the spread of the virus are affecting Australia's economy, with many businesses temporarily shut with little or no income. We expect this to have an impact on the performance of mortgages, but we do not expect a rating impact on the 'AAAsf' rated notes in these transactions. This is because the 'AAAsf' rating can absorb Fitch's base-case scenario of the pandemic's impact. In addition, the rated notes have subordination that is 8.24x, 7.61x and 1.04x greater than the respective 'AAAsf' portfolio loss of SMHL Series Securitisation Fund 2013-1, SMHL Series Securitisation Fund 2014-1 and SMHL Series 2018-1 Fund. SMHL 2018-1 has a five-year revolving period. Therefore, Fitch's initial asset analysis is based on a pool stressed to pool parameters. The pool parameters include limits on investment loans, geographical concentration and the weighted-average loan/value ratio. The actual portfolio is well within the stressed portfolio parameters. Commentary describing Fitch's credit views and analytical approach as a consequence of the coronavirus is available in the reports Global Economic Outlook: Crisis Update Late April 2020 (https://www.fitchratings.com/site/re/10119491), published 23 April 2020, Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases -- Update (https://www.fitchratings.com/site/re/10120570), published 29 April 2020, and Global SF Rating Assumptions Updated to Reflect Coronavirus Risk (https://www.fitchratings.com/site/pr/10117224), published 3 April 2020. Analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the commentary Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS ( https://www.fitchratings.com/site/pr/10120792), published 5 May 2020. Liquidity Risk from Payment Holidays: We have reviewed the ability of these transactions to survive a significant proportion of borrowers being offered, and taking up, a payment holiday. These transactions benefit from liquidity facilities sized at between 0.9% and 1.6% of outstanding asset balance and excess revenue reserves (for SMHL 2013-1 and SMHL 2014-1 only), which would be able to cover more than 13.6 months of required payments at the current bank-bill spot rate should there be no principal or interest collections. In the event there is not a 100% take-up of payment holiday, the transactions can also use any principal payments received to pay interest. Operational Risk: ME Bank is an authorised deposit-taking institution that has its headquarters in Melbourne, Victoria. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with market standards and that there were no material changes that may affect ME Bank's ongoing ability to undertake origination, administration and collection activities. At the time of the rating action, the collections and servicing activities have not been disrupted due to the coronavirus outbreak as staff continue to work onsite and can work remotely, if needed. Asset Analysis: The asset model was not re-run for these transactions, in accordance with Fitch's criteria. On the April payment date, the credit enhancement to class A notes from SMHL 2013-1, SMHL 2014-1 and SMHL 2018-1 was 17.3%, 17.5% and 8.3%, respectively. At end-March 2020, arrears of 30+ days for SMHL 2013-1 (3.0%) and SMHL 2014-1 (2.3%) and 90+ days for SMHL 2013-1 (2.4%) and SMHL 2014-1 (1.3%) tracked above Fitch's 4Q19 Dinkum RMBS Index (30+ days 1.1%; 90+ days 0.6%). SMHL 2018-1's 30+ and 90+ days arrears were below the index at 0.5% and 0.2%, respectively. Loans that have a current hardship status but are not in arrears are not included in ME Bank's arrears figures. The higher arrears observed in SMHL 2013-1 and SMHL 2014-1 reflected the transactions' low bond factors of 11.3% and 13.0%, respectively. The low bond factors mean arrears balances, which remained stable over the last year, are magnified as they are compared with shrinking pools. The higher arrears ratios have not led to increased losses, with only six losses to date between the three transactions (AUD615,031 in total), all of which have been covered by lenders' mortgage insurance (LMI) and excess spread. Liability Analysis: Cash flow analysis was not performed for all trusts, in accordance with Fitch's criteria, as the notes are rated at the highest possible level (AAAsf), asset composition and performance have not changed materially since the last asset-model analysis, cash-flow distributions have been within Fitch's expectations since the last cash-flow model analysis and there have been no material changes to cash-flow assumptions since the last cash-flow model analysis. Macroeconomic Factors: Fitch expects mortgage performance to deteriorate in the near term, but to continue to support the Stable Outlook for the 'AAAsf' notes. Fitch currently forecasts Australia's GDP will shrink 5.0% in 2020 with unemployment rising to 8.0%. This is 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 4.8% in 2021 and the unemployment rate to fall to 7.1%. The Stable Outlook is based on the notes' liquidity support and ability to withstand the sensitivity to higher defaults stemming from the pandemic. RATING SENSITIVITIES 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 and/or renewals of lockdown measures and prevents a recovery in financial markets. The class A notes from SMHL 2013-1 and 2014-1 have subordination that is 8.24x and 7.61x greater than the 'AAAsf' portfolio loss, respectively, and can absorb Fitch's downside scenario of the coronavirus-related impact. The class A notes from SMHL 2018-1 have subordination that is 1.04x greater than the 'AAAsf' portfolio loss using the stressed portfolio, and the actual portfolio is well within the stressed portfolio parameters. Factors that could, individually or collectively, lead to positive rating action/upgrade: The class A notes of all transactions are rated 'AAAsf', which is the highest level on Fitch's scale. The rating cannot be upgraded. Factors that could, individually or collectively, lead to negative rating action/downgrade: A longer-than-expected coronavirus crisis that deteriorates macroeconomic fundamentals and consumers' financial position in Australia beyond Fitch's current baseline scenario would have a negative impact on the ratings. Credit enhancement ratios cannot fully compensate the credit losses and cash flow stresses associated with the assigned ratings, all else being equal. The ratings of all rated notes across the three transactions are LMI independent and therefore are unaffected by downgrades in the LMI providers' ratings. For more information on Fitch's stress portfolio and initial model-implied rating sensitivities, please refer to the new issuance reports. 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 our ongoing monitoring. Prior to SMHL 2013-1 and SMHL 2014-1 closing, Fitch did not review the results of a third-party assessment conducted on the asset portfolio information. Prior to SMHL 2018-1 closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was available. As part of Fitch's ongoing monitoring, we reviewed a small targeted sample of ME Bank'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 our applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis: - issuer and servicer reports as of the April 2020 payment date and provided by ME Bank; - loan enforcement details as of the April 2020 payment date and provided by ME Bank; and - discussions with, and updates from, ME Bank in April and May 2020. 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 listed below. In addition, sources of information that are not discussed in the criteria were used and are described under the sources of information section above. 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 Level 15 77 King Street 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. 04 Jun 2019) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10076316 Global Structured Finance Rating Criteria (pub. 02 May 2019) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10073280 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/10118342 Solicitation Status https://www.fitchratings.com/site/pr/10118342#solicitation Endorsement Status https://www.fitchratings.com/site/pr/10118342#endorsement_status Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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