Fitch Assigns Final 'AAAsf' Ratings to Firstmac Mortgage Funding No.4 Series 2-2020; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-15 July 2020: Fitch Ratings has assigned final ratings to Firstmac Mortgage Funding Trust No.4 Series 2-2020'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 are issued by Firstmac Fiduciary Services Pty Ltd in its capacity as trustee of Firstmac 2-2020. The total collateral pool consisted of 3,209 obligors and totaled AUD1,284 million at the 31 May 2020 cut-off date. Firstmac Mortgage Funding Trust No.4 Series 2-2020 ----A-1a AU3FN0054805; Long Term Rating; New Rating; AAAsf; RO:Sta ----A-1b AU3FN0054813; Long Term Rating; New Rating; AAAsf; RO:Sta ----A-2 AU3FN0054821; Long Term Rating; New Rating; AAAsf; RO:Sta ----A-3 AU3FN0054839; Long Term Rating; New Rating; AAAsf; RO:Sta ----B AU3FN0054847; Long Term Rating; New Rating; NRsf ----C AU3FN0054854; Long Term Rating; New Rating; NRsf ----D AU3FN0054862; Long Term Rating; New Rating; NRsf ----E AU3FN0054870; Long Term Rating; New Rating; NRsf ----F AU3FN0054888; Long Term Rating; New Rating; NRsf KEY RATING DRIVERS Pandemic-Related Economic Shock: Fitch has made assumptions about the spread of the coronavirus and the economic impact of containment measures. In 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. In a downside (sensitivity) scenario, Fitch assesses 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: Measures to limit the spread of the coronavirus 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. Liquidity Risk from Payment Holidays: We reviewed the transaction's ability to survive a large portion of borrowers taking a payment holiday, despite no borrowers in the pool taking one up as at the cut-off date. The transaction benefits from a liquidity reserve sized at 1.2% of the note balance, which is sufficient to cover more than seven months of required payments at the bank-bill spot rate should there be no principal or interest collections. The transaction can also use any principal payments received to pay interest if not all borrowers utilise a payment holiday. 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. We do not expect the servicer's operations to be disrupted by the pandemic, as staff are able to work remotely and have been redeployed to deal with increased borrower communications. Asset Analysis: The 'AAAsf' weighted-average (WA) foreclosure frequency of 8.2% is driven by the WA unindexed loan/value ratio (LVR) of 65.0%, and, under Fitch's methodology, investment loans of 41.0%. The 'AAAsf' lenders' mortgage insurance (LMI) dependent WA recovery rate of 55.1% is driven by the portfolio's WA indexed scheduled LVR of 68.0%, with 12.9% of the pool benefiting from LMI and the portfolio 'AAAsf' WA market value decline of 59.7%. Liability Analysis: Classes A-1a/A-1b, A-2 and A-3 benefit from credit enhancement of 15.0%, 8.0% and 5.0%, respectively. Structural features include a liquidity reserve sized at 1.2% of the note balance with a floor of AUD1,560,000. Classes A-1a, A-1b, A-2 and A-3 can withstand all relevant Fitch 'AAAsf' stresses applied in our cash-flow analysis. Macroeconomic Factors: Fitch expects mortgage performance to deteriorate in the near term, but to continue to support the Stable Outlook on the notes. Fitch forecasts Australia's GDP to contract by 2.7% in 2020, with the unemployment rate increasing to 7.1%. This is to be partially offset by a low 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. The Stable Outlook on the notes reflects liquidity support and the ability to withstand sensitivity to higher defaults stemming from the pandemic. 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 recovery rate stress to the pre-LMI recovery rate to isolate the effect of a change in recovery proceeds at the borrower level. Notes class: A-1a / A-1b / A-2 / A-3 Final Rating: AAAsf / AAAsf / AAAsf / AAAsf Downside Sensitivity: Expected impact on note ratings of increased defaults: Increase defaults by 15%: AAAsf / AAAsf / AAAsf / AAAsf Increase defaults by 30%: AAAsf / AAAsf / AAAsf / AA+sf Expected impact on note ratings of decreased recoveries: Reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AAAsf Reduce recoveries by 30%: AAAsf / AAAsf / AAAsf / AAAsf Expected impact on note ratings of multiple factors: Increase defaults by 15% and reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AA+sf Increase defaults by 30% and reduce recoveries by 30%: AAAsf / AAAsf / AAAsf / AAsf The transaction structure supports LMI-independent ratings for the class A-1a, A-1b, A-2 and A-3 notes. LMI is not required to support the rating due to the level of credit support provided by the lower notes. 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 defaults by 15% and decreasing the recoveries by 15% for the 'AAAsf' rated notes. Expected coronavirus downside impact on note ratings of multiple factors: AAAsf / AAAsf / AAAsf / AA+sf The rated notes pass the additional arrears stress of 0.4% applied to the 60-89 days arrears category. The arrears stress is calculated using the 12 months WA 30+ days arrears to February 2020 for the existing Firstmac transactions. Factors that could, individually or collectively, lead to positive rating action/upgrade: The rated notes are at 'AAAsf', which is the highest level on Fitch's scale. The ratings 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 compensate for the 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 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. Date of Relevant Committee 02 July 2020 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 / 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 31 May 2016. Contacts: Primary Rating Analyst Jimmy Tanzil, Senior Analyst +61 2 8256 0305 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 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 Suite 15.01, Level 15 135 King Street Sydney 2000 Committee Chairperson Natasha Vojvodic, Senior Director +61 2 8256 0350 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) 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. 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) Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 06 Dec 2019) (https://www.fitchratings.com/site/re/10103887) Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). Multi-Asset Cash Flow Model, v2.8.0 (1 (https://www.fitchratings.com/site/re/974535)) ResiGlobal Model: Australia, v1.59.3 (1 (https://www.fitchratings.com/site/re/974535)) Read More On This Topic Firstmac Mortgage Funding Trust No.4 Series 2-2020 - Appendix (https://www.fitchratings.com/site/re/10128511) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10129464) Solicitation Status (https://www.fitchratings.com/site/pr/10129464#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10129464#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10129464#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). IN ADDITION, THE FOLLOWING HTTPS://WWW.FITCHRATINGS.COM/RATING-DEFINITIONS-DOCUMENT (https://www.fitchratings.com/rating-definitions-document) DETAILS FITCH'S RATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDING DEFINITIONS RELATING TO DEFAULT. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY (https://www.fitchratings.com/site/regulatory). 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 RATINGS WEBSITE. Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes 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 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.