Fitch Assigns Expected Ratings to PUMA Series 2015-3's A-R and B1-R Notes

(The following statement was released by the rating agency) Fitch Ratings-Sydney-26 July 2020: Fitch Ratings has assigned expected ratings to PUMA Series 2015-3's residential mortgage-backed floating-rate class A-R and B1-R notes. The full outstanding balance of the class A and B1 notes will be repaid with funds raised via the issuance. The class A-R and B1-R notes will also have similar conditions as class A and B1 notes. A total of AUD1.47 billion class A and B1 notes were issued in August 2015 as part of the PUMA Series 2015-3 AUD1.5 billion RMBS issue by Macquarie Bank Limited (MBL, A/Negative/F1). The transaction has paid down to about AUD441.1 million as of the June 2020 payment date. The notes will be issued by Perpetual Limited in its capacity as trustee of PUMA Series 2015-3. The social and market disruptions caused by the coronavirus and related containment measures did not negatively affect the ratings because there is sufficient credit enhancement to cover expected higher defaults, and because Fitch views liquidity protection as sufficient to support the assigned ratings. The sensitivity of the ratings to scenarios more severe than currently expected is provided in the Rating Sensitivities section. The Stable Outlook is based on the notes' liquidity support and ability to withstand the sensitivity to higher defaults stemming from the pandemic. PUMA Series 2015-3 ----A-R ; Long Term Rating; Expected Rating; AAA(EXP)sf; RO:Sta ----B1-R ; Long Term Rating; Expected Rating; AAA(EXP)sf; RO:Sta KEY RATING DRIVERS Pandemic-Related Economic Shock: Fitch has made assumptions about the spread of the coronavirus and the economic impact of the related containment measures. As a base-case (most likely) scenario, Fitch assumes a global recession in 1H20 driven by sharp economic contractions in major economies with a rapid spike in unemployment, followed by a recovery that begins in 3Q20 as the health crisis subsides. Fitch's downside (sensitivity) scenario in the Rating Sensitivities section below takes into consideration a more severe and prolonged period of stress, with recovery to pre-crisis GDP levels delayed until around the middle of the decade. Pandemic-Related Impact: The measures put in place to limit the virus spread are affecting Australia's economy, with many businesses continuing to experience a decline in income. We expect these measures to affect mortgage performance, but there should be no rating impact on the rated notes, as the ratings can absorb Fitch's base-case scenario of the pandemic. In addition, the rated notes have subordination that is at least 2.7x greater than the 'AAAsf' portfolio loss. Liquidity Risk from Payment Holidays: We have reviewed the ability of the transaction to survive a significant proportion of borrowers taking a payment holiday. The transaction benefits from a liquidity reserve sized at 1.3% of the asset balance and can withstand 100% of the pool being granted a payment holiday for more than seven months at the bank bill spot rate, which is well above the 13.8% of mortgages on payment holiday arrangements as of end-June. Operational Risk: MBL is a registered authorised deposit-taking institution (ADI) headquartered in Sydney. Fitch undertook an onsite operational review and found that the operations of the originator and Macquarie Securitisation Limited (MSL), the servicer, were comparable with market standards and that there were no material changes that may affect either MBL's or MSL's ability to undertake administration and collection activities, respectively. MSL's collection timelines, policies and procedures are in line with other conforming lenders in Australia. Collection and servicing activities have not been disrupted by the pandemic, as staff members are able to work remotely and have access to the office, if needed. Asset Analysis: The 'AAAsf' weighted-average (WA) foreclosure frequency of 7.6% is driven by the WA unindexed loan/value ratio (LVR) of 58.1% and, under Fitch's methodology, investment loans of 26.9%. The 'AAAsf' lenders' mortgage insurance (LMI) dependent WA recovery rate of 77.1% is driven by the portfolio's WA indexed scheduled LVR of 62.9%, 100% of the pool benefiting from LMI and the portfolio 'AAAsf' WA market value decline of 62.3%. The 30+ day arrears were 2.44% as of end-June 2020, higher than the Fitch 1Q20 Dinkum RMBS Index of 1.16%. The higher level of arrear percentages has not translated into equivalent level of losses. The transaction has experienced four losses since closing, totalling about AUD325,000. All losses have been covered by LMI and excess spread. LMI cover is provided by Genworth Financial (NYSE:GNW) Mortgage Insurance Pty Limited (Insurer Financial Strength Rating: A/Negative) and QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength Rating: A+/Stable). Liability Analysis: Cash flow analysis was not performed, in accordance with Fitch's criteria, as the notes are rated at the highest possible level, cash-flow distributions have been within Fitch's expectations since the last cash-flow model analysis and there have been no material changes to cash-flow assumptions since the last cash-flow model analysis. The class A-R and B1-R notes will benefit from credit enhancement of 28.1% and 7.0%, respectively. Structural features include a liquidity reserve sized at 1.3% of the asset balances with a floor of AUD1.95 million. Macroeconomic Factors: Fitch expects mortgage performance to deteriorate in the near term, but to continue to support the Stable Outlook on the rated notes. Fitch forecasts Australia's GDP to contract by 2.7% in 2020, with the unemployment rate of 7.1%. This is to be partially offset by a low Official Cash Rate of 0.25% and the application of both central bank and government stimulus measures. Fitch expects GDP growth to bounce back to 3.1% in 2021 and for the unemployment rate to fall to 6.7% in the medium term. 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 potential negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions. Fitch stresses the pre-LMI recovery rate to isolate the effect of a change in recovery proceeds at the borrower level. Notes: A-R / B1-R Expected Rating: AAAsf / AAAsf Impact of increased defaults on the notes' expected ratings: Increase in defaults by 15%: AAAsf / AAAsf Increase in defaults by 30%: AAAsf / AAAsf Impact of decreased pre-LMI recoveries on the notes' expected ratings: Reduce recoveries by 15%: AAAsf / AAAsf Reduce recoveries by 30%: AAAsf / AAAsf Impact of multiple factors on the notes' expected ratings: Increase defaults by 15%, reduce recoveries by 15%: AAAsf / AAAsf Increase defaults by 30%, reduce recoveries by 30%: AAAsf / AAAsf The transaction structure supports LMI-independent ratings for the class A-R and B1-R notes. LMI is not required to support the ratings due to the level of credit support provided by the lower notes. The rated notes pass the additional arrears stress of 13.8% applied to the 30-59 day arrears category. The arrears stress is calculated using the value of loans with a recorded payment holiday as of end-June. Coronavirus Downside Scenario Sensitivity Under Fitch's downside scenario, re-emergence of infections in the major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets. Fitch tested this scenario by increasing the defaults by 15% and decreasing the recoveries by 15% for the 'AAAsf' notes. Expected coronavirus downside impact on note ratings of multiple factors: AAAsf / AAAsf Factors that could, individually or collectively, lead to positive rating action/upgrade: The Class A-R and B1-R notes are rated 'AAAsf', which is the highest level on Fitch's scale. The rating 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. 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 for the transaction. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of MBL'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. 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 12 June 2015. ESG Considerations The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to 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. 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 Bradley Isaac, Senior Analyst +61 2 8256 0306 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 Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 27 May 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10123329) Global Structured Finance Rating Criteria (pub. 17 Jun 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10126475) RMBS Lenders' Mortgage Insurance Rating Criteria (pub. 12 Mar 2020) (including rating assumption sensitivity) (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) Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). ResiGlobal Model: Australia, v1.59.3 (1 (https://www.fitchratings.com/site/re/974535)) Read More On This Topic PUMA Series 2015-3 - Appendix (https://www.fitchratings.com/site/re/870048) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10129802) Solicitation Status (https://www.fitchratings.com/site/pr/10129802#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10129802#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10129802#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS (HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS). 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