Fitch Rates Restructured Bluestone CBA Warehouse Trust 2015

(The following statement was released by the rating agency) Fitch Ratings-Sydney-17 June 2020: Fitch Ratings has affirmed and withdrawn the existing ratings on Bluestone CBA Warehouse Trust 2015's mortgage-backed floating-rate notes due to a restructuring of the facility. The restructuring is not due to adverse circumstances or deterioration in performance, and is therefore not a distressed debt exchange. The restructuring involves adding three tiered conforming loan parameters, each with its own structure, a change from the 100% non-conforming loans previously modelled. This is while the trust's revolving period is extended. Fitch has also assigned new ratings to Bluestone CBA Warehouse Trust 2015's restructured residential mortgage-backed floating-rate notes. The ratings are based on the facility limits of each note. The issuance consists of notes backed by Australian residential mortgages originated by Bluestone Mortgages Pty Limited. The notes were issued by Permanent Custodians Limited in its capacity as trustee of Bluestone CBA Warehouse Trust 2015. Bluestone CBA Warehouse Trust 2015 ----A. ; Long Term Rating; Affirmed; AAAsf; RO:Sta ----A. ; Long Term Rating; Withdrawn; WDsf ----B. ; Long Term Rating; Affirmed; AAsf; RO:Sta ----B. ; Long Term Rating; Withdrawn; WDsf ----C. ; Long Term Rating; Affirmed; Asf; RO:Sta ----C. ; Long Term Rating; Withdrawn; WDsf ----D. ; Long Term Rating; Affirmed; BBBsf; RO:Sta ----D. ; Long Term Rating; Withdrawn; WDsf ----E. ; Long Term Rating; Affirmed; BBsf; RO:Sta ----E. ; Long Term Rating; Withdrawn; WDsf ----F. ; Long Term Rating; Affirmed; Bsf; RO:Sta ----F. ; Long Term Rating; Withdrawn; WDsf ----A ; Long Term Rating; New Rating; AAAsf; RO:Sta ----B ; Long Term Rating; New Rating; AAsf; RO:Sta ----C ; Long Term Rating; New Rating; Asf; RO:Sta ----D ; Long Term Rating; New Rating; BBBsf; RO:Sta ----E ; Long Term Rating; New Rating; BBsf; RO:Sta ----F ; Long Term Rating; New Rating; Bsf; RO:Sta ----G ; Long Term Rating; New Rating; NRsf ----Z ; Long Term Rating; New Rating; NRsf KEY RATING DRIVERS Coronavirus-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. In a downside (sensitivity) scenario in the rating sensitivities section below, Fitch 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. Coronavirus-Related Impact: The measures put in place to limit the virus spread are affecting Australia's economy, with many businesses temporarily shut with little or no income. We expect this to affect the trust's mortgage performance, and have a negative rating effect on the junior notes. This is because lower subordinated rating levels are more vulnerable to changes in macroeconomic conditions. Commentary describing Fitch's credit views and analytical approach as a consequence of the coronavirus is available in these reports: - "Global Economic Outlook: Crisis Update May 2020 - Coronavirus Shock Broadens", published 26 May 2020, available at https://www.fitchratings.com/site/re/10123265; - "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases -- Update", published 29 April 2020, available at www.fitchratings.com/site/re/10120570; and - "Global SF Rating Assumptions Updated to Reflect Coronavirus Risk", published 3 April 2020, available at www.fitchratings.com/site/pr/10117224. In addition, analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the commentary "Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS", published 5 May 2020, available at www.fitchratings.com/site/pr/10120792. 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 facility sized at 2.5% of the outstanding note balance and is sufficient to cover more than 11 months of documented required payments at the current bank-bill spot rate should there be no principal or interest collections. In the event there is not a 100% take-up of the payment holiday, the transaction can also use any principal payments received to pay interest. Operational Risk: Bluestone is a non-bank lender with extensive experience in originating, servicing and managing its mortgage portfolio. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with market standards and that there were no material changes that may affect Bluestone's ongoing ability to undertake administration and collection activities. Bluestone's collection timelines, policies, procedures and origination practices are largely in line with those of other lenders in Australia after taking into account the large amount of non-conforming borrowers in their portfolio, as evident from the transaction's historical performance. Asset Analysis: The transaction has a rolling one-year revolving period, and therefore Fitch's analysis is based on a stressed proxy pool. The loan portfolio is shaped by the parameters set for the portfolio characteristics. These include: maximum obligor exposure, maximum loan size, maximum percentage of reduced documentation mortgages and interest-only loans. The 'AAAsf' weighted-average (WA) foreclosure frequency of 31.8% is driven by the WA unindexed loan/value ratio (LVR) of 69.9%, and, under Fitch's methodology, investment loans of 40.1%. The 'AAAsf' WA recovery rate of 50.8% is driven by the portfolio's WA indexed scheduled LVR of 70.4% and the portfolio 'AAAsf' WA market value decline of 58.8%. Liability Analysis: Each tranche of rated notes benefits from credit enhancement provided by the respective subordinate notes. Structural features include a liquidity facility sized at 2.5% of the invested note balance and a floor of AUD250,000. The class A, B, C, D, E and F notes pass all relevant stresses applied in the cash-flow analysis. Macroeconomic Factors: Fitch expects mortgage performance to deteriorate in the near term, but to continue to support the Stable Outlook for the notes. Fitch forecasts Australia's GDP will contract by 5.0% in 2020, with the unemployment rate to increase to 7.5%. This will 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 4.8% in 2021 and for the unemployment rate to fall to 6.9% in the medium term. The Stable Outlook on the notes reflects liquidity support and ability to withstand the 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 base-case assumptions. Notes: A / B / C/ D / E / F Rating: AAAsf / AAsf / Asf / BBBsf / BBsf / Bsf Downside Sensitivity Expected impact on note ratings of increased defaults: Increase defaults by 15%: AAsf / A+sf / BBB+sf / BBB-sf / BBsf / Bsf Increase defaults by 30%: AAsf / Asf / BBBsf / BB+sf / BB-sf / < Bsf Expected impact on note ratings of decreased recoveries: Reduce recoveries by 15%: AA+sf / A+sf / BBB+sf / BB+sf / B+sf / < Bsf Reduce recoveries by 30%: AA-sf / A-sf / BB+sf / B+sf / < Bsf / < Bsf Expected impact on note ratings of multiple factors: Increase defaults by 15% and reduce recoveries by 15%: AA-sf / A-sf / BBB-sf / BB-sf / < Bsf / < Bsf Increase defaults by 30% and reduce recoveries by 30%: A-sf / BBB-sf / B+sf / < Bsf / < Bsf / < Bsf Upgrade Sensitivity: Rating sensitivity to decreased charge-offs: Notes: A / B / C/ D / E / F Rating: AAAsf / AAsf / Asf / BBBsf / BBsf / Bsf Decrease defaults by 15% and increase recoveries by 15%: AAAsf / AAAsf / AAsf / A+sf / BBB+sf / BB+sf Upgrade to the ratings for class D and E are constrained by the tail-risk concentration. 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 recoveries by 15% across all rating levels. Coronavirus downside impact on note ratings of multiple factors: AA-sf / A-sf / BBB-sf / BB-sf / < Bsf / < Bsf Factors that could, individually or collectively, lead to positive rating action/upgrade: Increased credit enhancement ratios that are able to fully compensate for the credit losses, tail risk tests and cash flow stresses that are commensurate with higher rating stress scenarios, all else being equal. Factors that could, individually or collectively, lead to negative rating action/downgrade: Downgrades may occur if the build-up of credit enhancement does not compensate for higher losses than our expectations due to greater levels of defaults and portfolio deterioration. CRITERIA VARIATION Fitch has applied a variation to the APAC Residential Mortgage Rating Criteria, which specifies the foreclosure frequency matrix for each rating level. Fitch has reviewed and updated sector outlooks globally in response to the rapidly deteriorating macroeconomic and operational environment linked to the effects of the coronavirus pandemic. Based on the above, Fitch has undertaken additional analysis in order to incorporate changing macroeconomic conditions as a result of the COVID-19 pandemic. The analysis uses the inherent assumption that the Australian delinquency rate will equal that experienced in the UK during the financial crisis and then fall back to the Australian long-term average. Under this assumption, Fitch increased the default assumptions by 0% at 'AAAsf' to 36% and 30% at 'Bsf' for conforming mortgages and non-conforming mortgages, respectively. 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 this transaction. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of Bluestone'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 issuers have 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 was not prepared for this transaction. Offering Documents for this market sector typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the trust. Therefore, Fitch credit reports for this market sector will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'. Dated 31 May 2016. ESG Considerations Bluestone CBA Warehouse Trust 2015 has an ESG Relevance Score of 4 for Exposure to Social Impact due to our consideration in cash flow analysis of the limited ability of the mortgage lender to reprice loans as a result of borrowers paying above-market rates, which has a negative impact on the credit profile and is relevant to the ratings. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or 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 James Leung, Director +61 2 8256 0322 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 2000 Secondary Rating Analyst Jimmy Tanzil, Senior Analyst +61 2 8256 0305 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 Claire Heaton, Senior Director +61 2 8256 0361 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. 02 May 2019) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10073280) 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, v2.7.0 (1 (https://www.fitchratings.com/site/re/974535)) ResiGlobal Model: Australia, v1.59.3 (1 (https://www.fitchratings.com/site/re/974535)) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10126112) Solicitation Status (https://www.fitchratings.com/site/pr/10126112#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10126112#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10126112#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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