Fitch Affirms Two Classes from Two Pinnacle Series Transactions at 'AAAsf'; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-02 February 2021: Fitch Ratings has affirmed two classes of notes from two Pinnacle Series transactions at 'AAAsf'. The transactions consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans. All mortgages were originated by Police and Nurses Limited, which trades as P&N Bank Limited. The notes were issued by BNY Trust Company of Australia Limited in its capacity as trustee. The social and market disruption caused by the coronavirus pandemic and related containment measures have not affected the note ratings due to sufficient credit enhancement to cover our expectation of higher defaults and because we regard liquidity protection as sufficient to support the current ratings. The Stable Outlook reflects the notes' liquidity support and ability to withstand the sensitivity to higher defaults stemming from the pandemic. Pinnacle Series Trust 2013-T1 ----A AU3FN0020624; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable Pinnacle Series Trust 2014-SST ----A AU3FN0022190; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable KEY RATING DRIVERS Resilient Asset Performance: Pinnacle Series Trust 2014-SST's 30+ and 90+ day arrears as of end-2020, at 0.5% and 0.2%, respectively, were below Fitch's 3Q20 Conforming Dinkum RMBS Index of 1.0% and 0.6%. Pinnacle Series Trust 2013-T1's 30+ day arrears of 3.0% and 90+ day arrears of 1.7% were above the index, reflecting its low bond factor of 12.9%. The proportion of loans on COVID-19 hardship arrangements were 0.5% for Pinnacle 2014-SST and 0.9% for Pinnacle 2013-T1. Transaction performance has been strong, with just one loss for both transactions that was covered by lenders' mortgage insurance (LMI) and excess spread. Both rated notes have subordination that is at least 1.2x greater than the 'AAAsf' portfolio loss from the last model run. See the following links for Fitch's pandemic-related credit views and analytical approach: - "Global Economic Outlook - December 2020 ", 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. 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", published on 5 May 2020, available at www.fitchratings.com/site/pr/10120792; - "Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects", published on 29 July 2020, available at www.fitchratings.com/site/pr/10130287; and - "Fitch Ratings 2021 Outlook: Australia and New Zealand Structured Finance", published on 3 December 2020, available at www.fitchratings.com/site/re/10143773 Credit Enhancement Supports Ratings: Pinnacle 2013-T1 is paying down pro rata and will revert to sequential paydown, building up credit enhancement, if performance deteriorates significantly or at the call option date. Pinnacle 2014-SST has a 10-year revolving period, of which approximately three years remain. Fitch is comfortable with the long revolving period because of P&N Bank's stable product history and the portfolio parameters that maintain portfolio characteristics during the revolving period. Limited Liquidity Risk from Payment Holidays: We have reviewed the transactions' ability to survive a significant proportion of borrowers taking a payment holiday. The transactions benefit from liquidity reserves that cover at least seven months of required payments at the current bank-bill spot rate if 100% of the pools are under payment holiday arrangements. This is well above the proportion of mortgages on COVID-19 hardship arrangements at end-2020. The transactions can also use any principal payments received to pay interest if not all borrowers take up payment holidays. Low Operational and Servicing Risk: P&N Bank is an authorised deposit-taking institution, as defined by the Australian Prudential (LON:PRU) Regulation Authority. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were in line with other comparative conforming lenders. Collection and servicing activities have not been disrupted by the pandemic, as staff work remotely and are able to access bank branches and the disaster recovery site, if needed. Economic Rebound Supports Stable Outlook: Fitch expects loan performance to deteriorate in the near-term amid historically high unemployment, but to continue to support the Stable Outlook on the rated notes. Fitch forecasts Australia's GDP to expand by 3.8% in 2021, with the unemployment rate improving to 6.2%. We expect GDP growth to stabilise in 2022 at 2.7% and the unemployment rate to continue to improve, falling to 5.6%. The key rating drivers listed in the applicable sector criteria, but not mentioned above, are not material to this rating action. RATING SENSITIVITIES 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 fully compensate for higher credit losses and cash flow stresses, all else being equal. The transaction structure supports a LMI-independent rating for the class A notes of both transactions. LMI is not required to support the ratings due to the level of credit support provided by the lower notes. Fitch's previous rating sensitivities for each respective transaction were discussed in: - rating action commentary for Pinnacle 2013-T1, published on 16 October 2013, available at www.fitchratings.com/site/re/720916; - rating action commentary for Pinnacle 2014-SST, published on 24 February 2014, available at www.fitchratings.com/site/pr/821353; 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. Both rated notes have subordination that is at least 1.2x greater than the 'AAAsf' portfolio loss from the most recent model run. 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 as part of its ongoing monitoring. Prior to the transactions closing, Fitch did not review the results of a third-party assessment conducted on the asset portfolio information. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of P&N Bank's origination files and found the information 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: Primary Rating Analyst Sambit Agasti, Associate Director +61 2 8256 0337 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 2000 Secondary Rating Analyst Timothy Groombridge, Associate Director +61 2 8256 0339 Surveillance Rating Analyst Sambit Agasti, Associate Director +61 2 8256 0337 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 Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10151164) Solicitation Status (https://www.fitchratings.com/site/pr/10151164#solicitation-status) Additional Disclosures For Unsolicited Credit Ratings (https://www.fitchratings.com/site/pr/10151164#unsolicited-credit-ratings-disclosures) Endorsement Status (https://www.fitchratings.com/site/pr/10151164#endorsement-status) Endorsement Policy (https://www.fitchratings.com/site/pr/10151164#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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