Fitch Assigns Final Ratings to National RMBS Trust 2016-1

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: National RMBS Trust 2016-1 https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883122SYDNEY, June 16 (Fitch) Fitch Ratings has assigned final ratings to National RMBS Trust 2016-1 mortgage-backed pass-through and floating-rate notes. The issuance consists of notes backed by Australian prime residential mortgages originated by National Australia Bank Limited (NAB; AA-/Stable/F1+). The ratings are as follows:AUD1,840.0m Class A notes: 'AAAsf'; Outlook StableAUD120.0m Class B notes: 'AA-sf'; Outlook StableAUD40.0m Class C notes: 'NRsf'The notes will be issued by Perpetual Trustee Company Limited in its capacity as trustee of National RMBS Trust 2016-1. At the cut-off date, the total collateral pool consisted of AUD1,997.9m of loans underwritten by NAB. The pool has weighted-average seasoning of 31 months, with a weighted-average unindexed current loan-to-value ratio of 58.9% and a weighted-average current indexed loan-to-value ratio of 57.6%. The current average borrower loan size is AUD299,624. Investment loans represent 26.9% of the pool and interest-only loans represent 17.9%.KEY RATING DRIVERS The transaction has initial class A subordination of 8.0%. Interest is paid sequentially (after expenses) towards the class A notes, class B and then class C notes. Reimbursement of all losses is paid after the distribution of interest on class B notes. Principal will be allocated pro-rata to the class A, class B and class C notes if certain conditions are met.Liquidity support will be provided via excess spread, principal draws and a liquidity facility, sized at 1.9% of the notes' balance, with a facility floor of AUD3.8m. The liquidity facility will amortise, subject to the floor, while performance-based triggers are satisfied.NAB has considerable experience in mortgage lending and servicing. It originates loans through its nationwide branch network, mobile sales force, online and telephone sales operations and third-party mortgage brokers. NAB's residential mortgage arrears have generally tracked in line with Fitch's Dinkum Index for prime RMBS. The effect of ranking the class C note interest at the bottom of the interest waterfall is that the transaction benefits from increased excess spread to cover losses and charge-offs and withstand liquidity shocksRATING SENSITIVITIES Unexpected 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. This could result in potentially negative rating actions on the notes. Fitch has evaluated the sensitivity of National RMBS Trust 2016-1's final ratings to increased defaults and decreased recovery rates over the life of the transaction. Its analysis found the class A notes' ratings remained stable under each of Fitch's mild and severe default and recovery scenarios.The analysis found the class B notes' ratings were sensitive to the mild and severe default and recovery scenarios. Under increased default rate stresses of 15% (mild scenario) and 30% (severe scenario), the class B rating dropped to 'Asf' and 'A-sf', respectively. Under a reduced recovery rate stress of 15% (mild scenario) and 30% (severe scenario), the class B rating dropped to 'A-sf' and 'BBBsf', respectively. The rating was severely impacted by the combination scenarios of 15% increase in defaults with 15% decrease in recovery rates and 30% increase in defaults with 30% decrease in recovery rates, with ratings at 'BBB+sf' and 'BB+sf' respectively. The transaction structure supports lenders' mortgage insurance independent ratings for the class A notes. Lenders' mortgage insurance is not required to support the rating due to the level of credit support provided by the lower notes.DUE DILIGENCE USAGE No third party due diligence was provided or reviewed in relation to this rating action.DATA ADEQUACYFitch conducted a review of 10 sample loan files, focusing on the underwriting procedures conducted by NAB compared to NAB's credit policy at the time of underwriting. Fitch 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 Final Rating Sensitivities are further discussed in the corresponding new issue report entitled "National RMBS Trust 2016-1", published today. Included as an appendix to the report are a description of the representations, warranties and enforcement mechanisms.Contacts: Primary Analyst David CarrollDirector +612 8256 0333 Fitch Australia Pty Ltd.Level 15, 77 King St, Sydney, NSW 2000Secondary AnalystBrenden AsplinAssociate Director+612 8256 0340 Surveillance AnalystKatie BrookesAnalyst+612 8256 0364Committee Chairperson Natasha VojvodicSenior Director+612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.The sources of information identified for this rating action were NAB, as arranger, and the issuer's counsel, King & Wood Mallesons. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.Additional information is available at www.fitchratings.comApplicable 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=744175Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds - Derivative Addendum (pub. 14 Apr 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878499Global 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 National RMBS Trust 2016-1 - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883166Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1006133Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006133Endorsement 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 PUBLIC WEBSITE '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.