(The following statement was released by the rating agency) Link to Fitch Ratings' Report(s): https://www.fitchratings.com/site/re/10114542 https://www.fitchratings.com/site/re/10113806 https://www.fitchratings.com/site/re/10114557 Fitch Ratings-Sydney-March 26: Fitch Ratings has assigned expected ratings to Firstmac Mortgage Funding Trust No.4 Series 1-2020's mortgage-backed pass-through floating-rate notes. The issuance consists of notes backed by a pool of first-ranking Australian residential full-documentation mortgages originated by Firstmac nominee originators. The notes will be issued by Firstmac Fiduciary Services Pty Ltd in its capacity as trustee of Firstmac 1-2020. The total collateral pool consisted of 2,149 obligors and totaled AUD869.6 million at the 27 January 2020 cut-off date. Firstmac Mortgage Funding Trust No.4 Series 1-2020 ----A-1 ; Long Term Rating; Expected Rating; AAA(EXP)sf; RO:Sta ----A-2 ; Long Term Rating; Expected Rating; AAA(EXP)sf; RO:Sta ----AB ; Long Term Rating; Expected Rating; NR(EXP)sf ----B ; Long Term Rating; Expected Rating; NR(EXP)sf ----C ; Long Term Rating; Expected Rating; NR(EXP)sf ----D ; Long Term Rating; Expected Rating; NR(EXP)sf ----E ; Long Term Rating; Expected Rating; NR(EXP)sf ----F ; Long Term Rating; Expected Rating; NR(EXP)sf KEY RATING DRIVERS Operational Risk: Firstmac, established in 1988, is a non-bank financial institution specialising in conforming Australian residential mortgage lending. Fitch undertook an onsite operational review and found that the operations of the originator and servicer are consistent with other conforming non-bank lenders in Australia. Asset Analysis: The 'AAAsf' weighted-average (WA) foreclosure frequency of 8.6% is driven by the WA unindexed loan/value ratio (LVR) of 66.0% and, under Fitch's methodology, investment loans of 43.8%. The 'AAAsf' lenders' mortgage insurance (LMI) dependent WA recovery rate of 55.1% is driven by the portfolio's WA indexed scheduled LVR of 68.1%, with 6.2% of the pool benefiting from LMI, and the portfolio 'AAAsf' WA market value decline of 58.9%. Liability Analysis: Classes A-1 and A-2 benefit from credit enhancement of 15.0% and 8.0%, respectively. Structural features include a liquidity reserve sized at 1.0% of the note balance, with a floor of AUD968,000. Classes A-1 and A-2 can withstand all relevant Fitch 'AAAsf' stresses applied in our cash-flow analysis.
Macroeconomic Factors: Fitch expects mortgage performance to support the Stable Outlook for the rated notes. This is supported by Fitch's current forecast for economic growth in Australia of 1.2% for 2020 with unemployment to increase to 5.9%, a low cash rate of 0.25% and the application of both central bank and government stimulus measures. 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. Hence, Fitch conducts sensitivity analysis of the ratings by stressing the transaction's initial base-case assumptions. Fitch applies the recovery rate stress to the pre-LMI recovery rate to isolate the effect of a change in recovery proceeds at the borrower level. Expected impact on note ratings of increased defaults: Notes: A-1/A-2 Expected Rating: AAAsf/AAAsf Increase in defaults by 15%: AAAsf/AAAsf Increase in defaults by 30%: AAAsf/AAAsf Expected impact on note ratings of decreased recoveries: Notes: A-1/A-2 Expected Rating: AAAsf/AAAsf Reduce recoveries by 15%: AAAsf/AAAsf Reduce recoveries by 30%: AAAsf/AAAsf Expected impact on note ratings of multiple factors: Notes: A-1/A-2 Expected Rating: AAAsf/AAAsf Increase defaults by 15%, reduce recoveries by 15%: AAAsf/AAAsf Increase defaults by 30%, reduce recoveries by 30%: AAAsf/AAsf The transaction structure supports an LMI-independent rating for classes A-1 and A-2. LMI is not required to support the rating due to the level of credit support provided by the lower notes. Impact of the coronavirus: Fitch has conducted additional sensitivities on the potential impact of the coronavirus on liquidity support from increased payment holiday requests and more front-loaded defaults. The transaction's liquidity reserve is sufficient to cover more than five months of expenses and interest payments for the class A to E notes at the current bank-bill spot rate should 100% of borrowers be given payment holidays. The class A-1 and A-2 notes can withstand 100% of Fitch's 'AAAsf' defaults of 8.6% defaulting in the first 12 months, and still be able to meet timely payment of interest and ultimate payment of principal at 'AAAsf'. Key rating drivers and expected rating sensitivities are further discussed in the corresponding presale report, titled "Firstmac Mortgage Funding Trust No.4 Series 1-2020", published today. 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 reviewed a small targeted sample of Firstmac'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. Prior to the transaction closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available. 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. SOURCES OF INFORMATION The information below was used in the analysis: - loan-by-loan data provided by Firstmac as at 27 January 2020; and - transaction documentation provided by King Wood Mallesons, the issuer's counsel. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. ESG Considerations ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or 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. REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'. Dated 31 May 2016. Contacts: Primary Rating Analyst Jimmy Tanzil, Senior Analyst +61 2 8256 0305 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Secondary Rating Analyst James Leung, Director +61 2 8256 0322 Surveillance Rating Analyst Jimmy Tanzil, Senior Analyst +61 2 8256 0305 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Committee Chairperson Claire Heaton, Senior Director +61 2 8256 0361
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) https://www.fitchratings.com/site/re/10076316 Fitch Ratings Interest Rate Stress Assumptions for Structured Finance and Covered Bonds (Excel) (pub. 06 Dec 2019) https://www.fitchratings.com/site/re/10104368 Global Structured Finance Rating Criteria (pub. 02 May 2019) https://www.fitchratings.com/site/re/10073280 RMBS Lenders' Mortgage Insurance Rating Criteria (pub. 12 Mar 2020) 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 Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 06 Dec 2019) https://www.fitchratings.com/site/re/10103887 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10113804 Solicitation Status https://www.fitchratings.com/site/pr/10113804#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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