(The following statement was released by the rating agency)SYDNEY, July 18 (Fitch) Fitch Ratings has affirmed six classes of notes from Pepper Prime 2012-1 Trust and Pepper Prime 2013-1 Trust. The notes were issued by Permanent Custodians Limited as trustee of the transactions. The transactions are securitisations of Australian residential mortgages originated by GE Capital and purchased by Pepper Australia Pty Limited in August 2011. A full list of rating actions follows at the end of this commentary.KEY RATING DRIVERSThe affirmation reflects Fitch's view that the available credit enhancement is sufficient to support the notes' current ratings, and the agency's expectations of Australia's economic conditions. Credit quality and performance of the underlying loans have remained within the agency's expectations.As per the APAC Residential Mortgage criteria, the default model was not run for Pepper Prime 2012-1 Trust as a review of pre-determined performance triggers indicated that the transaction displayed stable asset performance. The default model was run for Pepper Prime 2013-1 Trust. As of 31 May 2016, 30+ days arrears for Pepper 2012-1 and Pepper 2013-1 were 2.50% and 2.49%, respectively, above the Fitch's Dinkum RMBS index of 0.95%.The underlying pools are 100% covered by LMI, provided by Genworth Financial (NYSE:GNW) Mortgage Insurance Pty Limited (Insurer Financial Strength Rating: A+/Stable) and QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength Rating: AA-/Stable). As of May 2016, losses prior to LMI claims for both transactions were below 0.11% of the original pool balance. LMI covered 84.4% and 75.3% of all losses for Pepper Prime 2012-1 Trust & Pepper Prime 2013-1 Trust, respectively. All losses not covered by LMI have been covered by excess spread.RATING SENSITIVITIES Sequential pay-down has increased credit enhancement for the senior notes of Pepper Prime 2012-1 Trust and Pepper Prime 2013-1 Trust, with the rated notes able to withstand multiples of the latest reported arrears. Fitch does not expect modest changes in performance to affect the ratings. The rated notes for all the transactions are independent of downgrades of the LMI providers' ratings.For Pepper Prime 2013-1 Trust, Fitch's 'AAAsf' breakeven stressed default rate is 11.5%. Among the class A notes, the class AR-u and A-a notes can withstand an additional 55.8% in defaults at Fitch's 'AAAsf' loss severity. The class AB notes can withstand 16.6% additional defaults at the 'AAAsf' loss severity.DUE DILIGENCE USAGE No third party due diligence was provided or reviewed in relation to this rating action.DATA ADEQUACY Fitch conducted a file review of 15 sample loan files focusing on the underwriting procedures conducted by Pepper Australia Pty Limited compared to its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.A comparison of the transaction's representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links given under Related Research below. The full list of rating actions is shown below:Pepper Prime 2012-1 Trust:AUD53.7m Class AR-u (ISIN AU3FN0024907) notes affirmed at 'AAAsf'; Outlook Stable;AUD73.5m Class A-a (ISIN AU3FN0017075) notes affirmed at 'AAAsf'; Outlook Stable; andAUD18.9m Class AB (ISIN AU3FN0017083) notes affirmed at 'AAAsf'; Outlook Stable.Pepper Prime 2013-1 Trust:AUD103.0m Class AR-u (ISIN AU3FN0027942) notes affirmed at 'AAAsf'; Outlook Stable;AUD68.7m Class A-a (ISIN AU3FN0019675) notes affirmed at 'AAAsf'; Outlook Stable; andAUD20.3m Class AB (ISIN AU3FN0019683) notes affirmed at 'AAAsf'; Outlook Stable.Contacts: Surveillance Analyst Stephen LoAnalyst+61 2 8256 0379Fitch Australia Pty Ltd., Level 15, 77 King St, Sydney, NSW 2000Committee Chairperson
Natasha VojvodicSenior Director+61 2 8256 0350
Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available at www.fitchratings.com.Sources of Information:The source of information used to assess this rating was Pepper Australia Pty Limited. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.Applicable Criteria APAC Residential Mortgage Criteria (pub. 23 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867437Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175Global Criteria for Lendersâ Mortgage Insurance in RMBS (pub. 23 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865195Global Structured Finance Rating Criteria (pub. 27 Jun 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130Related Research Pepper Prime 2012-1 Trust - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695491Pepper Prime 2013-1 - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716358Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions (Applicable to Transactions Rated from Sept.26, 2011 until June 15, 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863817Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1009044Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009044Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.