Fitch Affirms Triton Trust No.10 Titan Warehouse Series 2019-1; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-18 December 2020: Fitch Ratings has affirmed six classes of notes from Triton Trust No.10 Titan Warehouse Series 2019-1. The transaction consists of notes backed by a pool of first-ranking Australian residential mortgages originated by Columbus Capital Pty Limited. The notes were issued by Perpetual Corporate Trust Limited as trustee for Triton Trust No.10 Titan Warehouse Series 2019-1. Triton Trust No.10 Titan Warehouse Series 2019-1 ----A ; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----B Q7447#AA2; Long Term Rating; Affirmed; AAsf; Rating Outlook Stable ----C Q7447#AB0; Long Term Rating; Affirmed; Asf; Rating Outlook Stable ----D Q7447#AC8; Long Term Rating; Affirmed; BBBsf; Rating Outlook Stable ----E ; Long Term Rating; Affirmed; BB+sf; Rating Outlook Stable ----F ; Long Term Rating; Affirmed; BB-sf; Rating Outlook Stable Transaction Summary The transaction is a warehouse that purchases receivables on a revolving basis during an availability period. The current term for the availability period expires in March 2021; however, it can be extended at the request of the manager and the subsequent agreement of the financiers, and is subject to eligibility criteria and pool parameters. The transaction will move to sequential principal payment if an amortisation event is subsisting. As per the transaction documents, payment of class A subordinated interest and of class B, C, D, E and F residual interest is excluded from our rating analysis. Class A subordinated interest is subordinated below losses if an amortisation event is subsisting for more than six months, while class B, C, D, E and F residual interest is subordinated below losses when the outstanding asset balance is below AUD77.5 million. Non-payment of subordinated or residual interest will not lead to an event of default, as outlined in the transaction documentation. The social and market disruption caused by the coronavirus pandemic and related containment measures has not negatively affected the ratings because there is sufficient credit enhancement (CE) and excess spread to cover our expectation of higher defaults, and because Fitch views liquidity protection as sufficient to support the current ratings. The sensitivity of the ratings to scenarios more severe than Fitch currently expects is provided in the Rating Sensitivities section. The Stable Outlook on all the notes reflects the liquidity support and the notes' ability to withstand the sensitivity to higher defaults stemming from the pandemic. KEY RATING DRIVERS Asset Performance Resilient to Pandemic: Actual 30+ day and 90+ day arrears at end-November 2020 were 0.04% and 0.00%, respectively, against 1.0% and 0.64% for Fitch's 3Q20 Dinkum RMBS Index. Transaction performance has been strong, with no losses since closing. The transaction has an availability period, therefore, Fitch's analysis is based on a proxy pool stressed to pool parameters provided by Columbus Capital and further stressed by Fitch. Stress levels are based on originator and historical data and Fitch's forward-looking view. Compared with the previous review, Fitch has reduced the magnitude of stress applied to a number of portfolio characteristics to reflect the historical portfolio composition and its expectation of the pool's future composition. Fitch has updated criteria assumptions for Australia to account for the expected effects of the coronavirus pandemic. Fitch applied 1.5x the five-year average of Columbus Capital's mortgage portfolio arrears to December 2019 for each arrears bucket, which increased the AAAsf weighted-average foreclosure frequency (WAFF) modelled by 0.4%. Additional multiples were applied to foreclosure frequency at the 'Asf' category or below to reflect changes in Fitch's forward-looking views, given the macroeconomic outlook. As a result, the overall updated assumption has increased post-lenders' mortgage insurance (LMI) net losses at 'AAAsf' by 0.1% and by 0.2% at 'Bsf'. The portfolio's 'AAAsf' WAFF of 12.8% is driven by the stressed weighted-average (WA) unindexed loan/value ratio (LVR) of 67.9%, loans with LVR greater than 80% making up 10.3% of the portfolio, stressed investment loans of 74.9% and Fitch-adjusted 30+ arrears of 1.62%. The 'AAAsf' post-LMI weighted-average recovery rate (WARR) of 57.7% is driven by the stressed portfolio's WA indexed scheduled LVR of 69.3%, the stressed LMI coverage of 15% and the portfolio's 'AAAsf' WA market value decline of 60.2%. See the following links for Fitch's pandemic-related credit views and analytical approach: - "Global Economic Outlook: December 2020 - Light at the End of the Tunnel", published on 7 December 2020, available at www.fitchratings.com/site/re/10145707; - "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update", published on 7 December 2020, available at www.fitchratings.com/site/re/10145938; and - "Global SF Rating Assumptions Updated to Reflect Coronavirus Risk", published on 3 April 2020, available at www.fitchratings.com/site/pr/10117224. In addition, 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", published on 5 May 2020, available at www.fitchratings.com/site/pr/10120792; and - "Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects", published on 28 July 2020, available at www.fitchratings.com/site/pr/10130287. Increased Required CE Support Ratings: Full cash flow analysis was performed for the trust utilising the documented note limits and minimum CE. Documented minimum CE percentages have been increased to 4.9%, 3.2%, 2.1%, 1.4% and 0.9% for class B, C, D, E and F notes, respectively, and remained unchanged at 10.0% for class A during the availability period. The transaction employs a sequential structure after the availability period with no pro rata pay down permitted. The transaction also benefits from a liquidity reserve sized at 1.4% of the outstanding note balance, subject to a documented floor of AUD375,000. The rated notes pass all relevant stresses applied in the cash-flow analysis. Limited Liquidity Risk from Payment Holidays: We have reviewed the ability of the transaction to withstand a significant proportion of borrowers being offered, and taking up, a payment holiday. The transaction's liquidity reserve would be able to cover the entire portfolio taking up a payment holiday for 6.3 months, assuming there are no principal or interest collections. No borrowers were on payment holiday arrangements at end-November 2020. Operational and Servicing Risk Consistent with Market Standards: Columbus Capital is a diversified non-bank financial institution that commenced lending in 2006, with specialisations in Australian residential mortgage lending, third-party loan servicing and trust management. Fitch undertook an 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 Columbus Capital's ongoing ability to undertake origination, administration and collection activities. The collections and servicing activities have not been disrupted by the pandemic, as staff can work remotely and are able to access the disaster recovery site, if needed. Expected Economic Rebound Supports Outlook: Fitch expects near-term mortgage performance to deteriorate, but to continue to support the Stable Outlook on the notes. We forecast Australia's GDP to contract by 2.8% in 2020, with an unemployment rate of 6.5%. This will be partially offset by a low cash rate of 0.1% and the application of both central bank and government stimulus measures. GDP growth is forecast to bounce back to 3.8% in 2021, with the unemployment rate falling to 6.2%. RATING SENSITIVITIES Unanticipated increases in the frequency of defaults and recovery rates on defaulted receivables could produce loss levels higher than Fitch's base case, and are likely to result in a decline in CE and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis of the ratings by stressing - upwards and downwards - the transaction's initial base-case assumptions. This section provides insight into the model-implied sensitivities the transaction faces when one assumption - WAFF or WARR - is stressed, while holding others equal. The modelling process uses the estimation and stress of default and loss assumptions to reflect asset performance in a stressed environment. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. Factors that could, individually or collectively, lead to positive rating action/upgrade: Macroeconomic conditions, loan performance and credit losses that are better than Fitch's baseline scenario or sufficient build-up of CE that would fully compensate for the credit losses and cash flow stresses commensurate with higher rating scenarios, all else being equal. Upgrade Sensitivity: Class A / B / C / D / E / F Current rating: AAAsf / AAsf / Asf / BBBsf / BB+sf / BB-sf Decrease defaults by 15%; increase recoveries by 15%: AAAsf / AA+sf / AAsf / Asf / BBB+sf / BBBsf 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 CE is not sufficient to compensate for the 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 transaction. Class A / B / C / D / E / F Current rating: AAAsf / AAsf / Asf / BBBsf / BB+sf / BB-sf Increase defaults by 15%: AAAsf / AA-sf / A-sf / BBBsf / BBsf / B+sf Increase defaults by 30%: AAAsf / A+sf / BBB+sf / BB+sf / BBsf / B+sf Decrease recoveries by 15%: AAAsf / AA-sf / BBB+sf / BBsf / B+sf / less than Bsf Decrease recoveries by 30%: AAAsf / Asf / BBB-sf / Bsf / less than Bsf / less than Bsf Increase defaults by 15%; decrease recoveries by 15%: AAAsf / Asf / BBBsf / BB-sf / Bsf / less than Bsf Increase defaults by 30%; decrease recoveries by 30%: AAsf / BBB+sf / BBsf/ less than Bsf / less than Bsf / less than Bsf The rating of the class A notes is LMI independent and therefore not sensitive to downgrades of the LMI providers' ratings. The remaining rated notes are LMI dependent. Class B, C, D, E and F notes can withstand one-, one-, three-, four- and four-notch downgrades, respectively, of the LMI providers' ratings. 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 Prior to the transaction closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was available. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of Columbus Capital'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 Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. 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 Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). 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