Fitch Rates MBL's First Mortgage Covered Bond 'AAA(EXP)'/Stable <Origin Href="QuoteRef">MBL.AX</Origin>

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: Macquarie Bank Limited - Mortgage Covered Bondshttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865649SYDNEY, February 05 (Fitch) Fitch Ratings has assigned a 'AAA(EXP)' rating with a Stable Outlook to Macquarie Bank Limited's (MBL, A/Stable/F1) inaugural series of mortgage covered bonds to be issued from its programme. The programme was established in June 2015, and allows MBL to periodically issue up to AUD5bn of bonds secured by a dynamic pool of Australian residential mortgage loans. The covered bonds are guaranteed by Perpetual Limited as trustee of the MBL Covered Bond Trust.KEY RATING DRIVERSThe 'AAA(EXP)' rating is based on MBL's Long-Term Issuer Default Rating (IDR) of 'A', a Discontinuity Cap (D-Cap) of 4 notches, and the asset percentage (AP) to be disclosed in the issuer's investor report, which is expected to be equal to or lower than Fitch's break-even AP for a 'AAA' rating of 89.5%. The Outlook on the covered bonds reflects the Stable Outlook on MBL's IDR.The D-Cap of '4' notches reflects Fitch's 'moderate' discontinuity risk assessment on the following four components: liquidity gaps and systemic risk, systemic alternative management, cover pool-specific alternative management, and privileged derivatives. In a scenario where the recourse of the covered bonds switches from the issuer to the cover pool, Fitch believes that a successful sale of the cover assets would be possible within the extendible maturity of 12 months expected for a soft-bullet issuance or within the 12-month pre-maturity test for a hard bullet issuance, which is envisaged in the documentation to make timely payments on the covered bonds. The systemic alternative management assessment addresses the significant roles performed following issuer default by the covered bond guarantor, or third parties acting on its behalf. The cover pool-specific alternative management assessment addresses both the quality and quantity of the data provided by the issuer and its IT systems. The privileged derivatives assessment reflects the materiality of the swaps to the programme.The 'AAA' break-even AP of 89.5%, corresponding to a break-even overcollateralisation (OC) of 11.7%, is driven by the asset disposal loss of 21%, reflecting the maturity mismatches in the programme upon issuance and the refinancing assumptions applied to Australian residential mortgages. This is followed by the cover pool's credit loss of 4.1% in a 'AAA' scenario, and finally the cash flow valuation component - which reduces the OC by 1.4% due to the excess spread under the programme based on a stressed weighted-average (WA) life of the assets versus the liabilities expected to be issued from the programme. The break-even AP takes into consideration whether timely payments are met in a 'AA' scenario, and tests for recoveries given default of at least 91% in a 'AAA' scenario.As of 31 December 2015, the cover pool consisted of 3,827 loans secured by first-ranking mortgages over Australian residential properties with a total outstanding balance of AUD2bn, a weighted-average (WA) current loan/value ratio (LVR) of 70.3%, and a Fitch-calculated WA indexed LVR of 68.4%. Investment loans comprise 31.1% of the pool by balance, and interest-only loans 47.0%. Fitch's calculated 'AAA' expected loss is 3.9% of the residential mortgage assets, which benefits from credit to lenders mortgage insurance.RATING SENSITIVITIESThe 'AAA(EXP)' rating would be vulnerable to a downgrade if any of the following were to occur: MBL's IDR is downgraded by two notches to 'BBB+'; the D-Cap falls by two notches to 2 (high discontinuity); or the AP rises above our 'AAA' break-even AP of 89.5%.Fitch's 'AAA' break-even AP for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time even in the absence of new issuance. Therefore, the 'AAA' break-even AP to maintain the covered bond rating cannot be assumed to remain stable over time.Contact: Primary AnalystClaire HeatonSenior Director+61 2 8256 0361Fitch Australia Pty Ltd. Level 15, 77 King St, Sydney NSW 2000Secondary AnalystJames LeungDirector+61 2 8256 0322Committee ChairpersonNatasha VojvodicSenior Director+61 2 8256 0350Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.The source of information used to assess these ratings was Macquarie Bank Limited. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public.Additional information is available on 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=744175Covered Bonds Rating Criteria (pub. 23 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868658Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum (pub. 23 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871331Fitch's Mortgage Covered Bond Refinancing Stresses - Excel File (pub. 23 Nov 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874101Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=999121Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999121Endorsement 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.