(The following statement was released by the rating agency) Link to Fitch Ratings' Report(s): Series 2018-1 REDS Trust https://www.fitchratings.com/site/re/10028227 Fitch Ratings-Sydney-May 09: Fitch Ratings has assigned expected ratings to Series 2018-1 REDS Trust's mortgage-backed floating-rate notes. The issuance consists of notes backed by a pool of first-ranking Australian residential full-documentation mortgage loans originated by Bank of Queensland Limited (BOQ, A-/Stable). The ratings are as follows: AUD460.0 million Class A1 notes: 'AAA(EXP)sf'; Outlook Stable AUD13.0 million Class A2 notes: 'AAA(EXP)sf'; Outlook Stable AUD4.7 million Class AB notes: 'NR(EXP)sf' AUD8.9 million Class B notes: 'NR(EXP)sf' AUD6.7 million Class C notes: 'NR(EXP)sf' AUD3.1 million Class D notes: 'NR(EXP)sf' AUD3.6 million Class E notes: 'NR(EXP)sf' The notes will be issued by Perpetual Trustee Company Limited in its capacity as trustee of Series 2018-1 REDS Trust. The total collateral pool consisted of 1,624 obligors totalling AUD500.0 million at the cut-off date on 10 April 2018. KEY RATING DRIVERS Macroeconomic Factors: Fitch expects stable mortgage performance, supported by sustained economic growth in Australia that is driven by stable forecast GDP growth of 2.7% in 2019 and no significant change to the official cash rate this year. The pool has a 59.7% concentration in Queensland. Asset Analysis: The 'AAAsf' weighted average (WA) foreclosure frequency of 9.4% is driven by the WA unindexed loan/value ratio (LVR) of 61.8%, a geographical concentration in Queensland, and, under Fitch's methodology, investment loans of 17.2%. The 'AAAsf' lender's mortgage insurance (LMI) dependent WA loss severity of 42.7% is driven by the portfolio's WA indexed scheduled LVR of 63.7%, 16.7% of the pool benefiting from LMI and the portfolio 'AAAsf' WA market value decline of 54.6%. Operational Risk: BOQ is a bank with a history dating back to 1874. Its lending practices are in line with other comparable lenders. It offers services ranging from mortgage lending to business and equipment loans.
Cash-Flow Analysis: The class A1 and A2 notes benefit from credit enhancement of 8.0% and 5.4%, respectively. Structural features include an excess spread reserve that traps excess income after the call date and a liquidity reserve sized at 1.0% of the note balances, with a floor of 0.1% of the aggregate note balance at closing. The class A1 notes may be redeemed in full on any payment date on or after the scheduled maturity date in June 2023 through the issuance of refinancing notes to be known as class A1-R notes. The class A1 and A2 notes can withstand all relevant Fitch 'AAAsf' stresses applied in our cash-flow analysis. EXPECTED 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 upon the note rating of increased defaults: Notes: A1 / A2 Rating: AAAsf / AAAsf Increase defaults by 15%: AAAsf / AAAsf Increase defaults by 30%: AAAsf / AAAsf Expected impact upon the note rating of decreased recoveries: Notes: A1 / A2 Rating: AAAsf / AAAsf Reduce recoveries by 15%: AAAsf / AAAsf Reduce recoveries by 30%: AAAsf / AAAsf Expected impact upon the note rating of multiple factors: Notes: A1 / A2 Rating: AAAsf / AAAsf Increase defaults by 15% and reduce recoveries by 15%: AAAsf / AAAsf Increase defaults by 30% and reduce recoveries by 30%: AAAsf / AAsf Decrease in recovery rate required to reduce note ratings: Notes: A1 / A2 Rating: AAAsf / AAAsf By one full category: 75% / 34% To non-investment grade: not even with 0% recoveries for both notes To 'CCCsf': not even with 0% recoveries for both notes The transaction structure supports LMI-independent ratings for the class A1 and A2 notes. LMI is not required to support the rating due to the level of credit support provided by the lower notes. Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Series 2018-1 REDS Trust" 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. 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 accessing the appendix referenced under "Related Research" below. 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. DATA ADEQUACY Fitch conducted a review of a small targeted sample of BOQ'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. Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available to Fitch. 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 BOQ as at 10 April 2018 Transaction documentation provided by Allen & Overy, 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. Contacts: Primary Analyst Tim Groombridge Associate Director +61 2 8256 0339 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Secondary Analyst Chris Stankovski Director +61 2 8256 0341 Committee Chairperson Claire Heaton Senior Director +61 2 8256 0361 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 14 Jul 2017) https://www.fitchratings.com/site/re/901072 Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 02 Feb 2018) https://www.fitchratings.com/site/re/10018863 Global Structured Finance Rating Criteria (pub. 03 May 2017) https://www.fitchratings.com/site/re/897411 RMBS Lenders' Mortgage Insurance Rating Criteria (pub. 03 Apr 2018) https://www.fitchratings.com/site/re/10025397 Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) https://www.fitchratings.com/site/re/898537 Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) https://www.fitchratings.com/site/re/898538 Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 02 Feb 2018) https://www.fitchratings.com/site/re/10018549 Related Research Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions https://www.fitchratings.com/site/re/882358 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10028226 Solicitation Status https://www.fitchratings.com/site/pr/10028226#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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