Fitch Assigns Expected Ratings to Light Trust No. 6

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: Light Trust No. 6https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870766SYDNEY, September 22 (Fitch) Fitch Ratings has assigned expected ratings to Light Trust No. 6's residential mortgage-backed floating-rate notes. The issuance consists of notes backed by first-ranking Australian residential mortgages originated by Australian Central Credit Union Ltd (ACCU), trading as People's Choice Credit Union (PCCU). The ratings are as follows:AUD460m Class A1 notes: 'AAA(EXP)sf'; Outlook Stable;AUD16.5m Class A2 notes: 'AAA(EXP)sf'; Outlook Stable;AUD9.0m Class AB notes: 'AAA(EXP)sf'; Outlook Stable;AUD10.75m Class B notes: 'NR(EXP)sf';AUD3.05m Class C notes: 'NR(EXP)sf'; andAUD0.7m Class D notes: 'NR(EXP)sf'.The notes will be issued by Perpetual Corporate Trust Limited in its capacity as trustee of Light Trust No. 6. At the cut-off date, the total collateral pool consisted of 3,314 loans to 2,900 borrowers, totalling approximately AUD500m.KEY RATING DRIVERSSufficient Enhancement: The class A1, A2 and AB notes benefit from credit enhancement (CE) of 8.0%, 4.7% and 2.9%, respectively. This is provided by the subordinate notes, from lenders' mortgage insurance (LMI), and People's Choice's servicing and underwriting capabilities.Sequential/Pro Rata Paydown: Principal will be allocated pro rata between the class A1 and A2 notes throughout the life of the transaction, and pro rata towards all notes if the step-down requirements are met. The class A2 notes are subordinated to the class A1 notes in relation to charge-offs and interest payments. Interest is paid sequentially (after expenses) towards the class A1, A2, AB, B, C and then the class D notes.Some Geographical Concentration: The geographical distribution of the portfolio is concentrated in South Australia (79.9%) and Northern Territory (8.8%), and is representative of People's Choice' origination network. The pool has 100% LMI cover. The weighted-average (WA) seasoning of the portfolio is 41 months, with a WA unindexed loan/value ratio (LVR) of 60.7% and WA Indexed LVR of 58.7%. The average current loan size is AUD172,414 and loans with an LVR greater than 80% account for 7.5%.Experienced Originator: People's Choice is one of Australia's largest credit unions by total assets. It is an Authorised Deposit-taking Institution (ADI) headquartered in Adelaide, South Australia and provides banking, residential lending, insurance and wealth creation services. Historically, the arrears levels of Light Trust transactions have tracked below the Dinkum Index.EXPECTED RATING SENSITIVITIESUnexpected decreases in residential property value, increases in the frequency of foreclosures, and loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, which could result in negative rating action on the notes. Fitch has evaluated the sensitivity of the expected ratings on the notes to increased defaults and decreased recovery rates over the life of the transaction. Its analysis found that the Class A1 and A2 notes' expected ratings remained stable under the mild and severe default scenarios and the mild recovery scenario. The Class AB note was sensitive to the severe default scenario of a 30% increase in default rate, with the rating declining to 'AA+sf'. Under the severe stress of a 30% decline in recovery rate, the Class A1 and A2 ratings declined to 'AA+sf' and the Class AB rating declined to 'AA-sf'.The expected ratings of the Class A1 and A2 notes were impacted only by a combination scenario of 30% increase in default rate and 30% decrease in recovery rates, with the ratings declining to 'AAsf.' The Class AB note rating was impacted under the mild and severe combination scenarios, declining to 'AA+sf' and 'A-sf', respectively. The transaction structure supports an LMI independent rating for the class A1 and A2 notes; therefore, LMI is not required to support the ratings. The class A1 notes are LMI independent due to the level of credit support provided by the lower notes; the class A2 notes are additionally supported by credit enhancement provided by excess available income and principal collections expected to be received prior to and immediately after the settlement date.DUE DILIGENCE USAGENo third party due diligence was provided or reviewed in relation to this rating action.DATA ADEQUACYFitch conducted a file review of 10 sample loan files focusing on the underwriting procedures conducted by People's Choice compared with People's Choice's 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.Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Light Trust No. 6", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.Contacts: Primary Analyst Brenden AsplinAnalystPhone +612 8256 340Fitch Australia Pty Ltd., Level 15, 77 King St, Sydney, NSW 2000Secondary Analyst Spencer WilsonAssociate DirectorPhone +612 8256 0320Committee Chairperson Ben McCarthyManaging DirectorPhone +612 8256 0388Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.Additional information is available at www.fitchratings.com.The sources of information identified for this rating action were National Australia Bank Limited, as arranger, and the issuer's counsel Ashurst. 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 Lenders’ 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. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952Related Research Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867166Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=991174Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991174Endorsement 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.