Fitch Upgrades 10, Affirms 13 Classes in Three Sapphire Transactions; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-October 25: Fitch Ratings has upgraded 10 and affirmed 13 classes of notes from three Sapphire Series transactions. The transactions consist of notes backed by pools of first-ranking Australian residential non-conforming mortgage loans. All mortgages were originated by Bluestone Group Pty Ltd and the notes were issued by Permanent Custodians Limited in its capacity as trustee of the Sapphire trusts. The three transactions are: Sapphire XIII Series 2014-1 Trust Sapphire XIV Series 2016-1 Trust Sapphire XVI Series 2017-1 Trust The upgrade for the class C notes from Sapphire 2016-1 is due to changes to some calculation conventions in the cash flow model in Fitch's APAC Residential Mortgage Rating Criteria, dated 23 October 2018, build-up of credit enhancement (CE) and improved performance. The remaining nine upgrades are due to build-up of CE and improved performance. A full list of rating actions follows at the end of this ratings action commentary. KEY RATING DRIVERS Operational Risk: Bluestone Mortgages Pty Limited is a non-bank mortgage originator and servicer. Bluestone Servicing Pty Limited is a wholly owned subsidiary of Bluestone Group. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with other similar lenders. Asset Analysis: Improved asset characteristics, including a lower weighted-average (WA) unindexed loan/value ratio, decreased arrears for Sapphire 2014-1 and 2016-1 as well as increased seasoning for Sapphire 2017-1, drove the 'AAAsf' WA foreclosure frequency for 2014-1, 2016-1 and 2017-1 fall to 25.1%, 33.6% and 36.6%, respectively, from 28.0%, 39.0% and 36.7%. The 'AAAsf' WA recovery rate (WARR) improved to 76.3%, from 72.5%, for Sapphire 2014-1 and 61.9%, from 60.7%, for Sapphire 2016-1, but deteriorated to 55.6%, from 56.2%, for Sapphire 2017-1. As at end-August 2018, 30+ day arrears of all three transactions tracked above Fitch's 2Q18 non-conforming Dinkum RMBS index of 5.3%; ranging between 9.8% for Sapphire 2016-1 and 13.7% for 2017-1. We have incorporated the higher arrears in our asset analysis, but they have not translated into an equivalent level of realised losses and are consistent with other Sapphire transactions. Realised losses have been 0.8% of total collateral for Sapphire 2014-1, 0.2% for 2016-1 and 0% for 2017-1 since closing. All losses have been covered by excess spread and there are no outstanding charge-offs. The underlying pools of all three transactions consist of 100% non-conforming mortgages. The composition of low documentation loans in the underlying pools ranged between 55.5% for Sapphire 2016-1 and 65.9% for 2014-1. Fitch considers the level of obligor concentration in the transactions' mortgage portfolios to be a key factor in assessing tail risk. Concentration and tail risk are mitigated by the subordination provided by the non-amortising class G and H notes and by documented tranche balance floors for Sapphire 2016-1 and 2017-1. Liability Analysis: Sapphire 2017-1 is currently paying down sequentially, building up CE, while Sapphire 2014-1 and 2016-1 are amortising pro rata, with limited build up in CE. Sapphire 2014-1 and 2016-1 have switched to paying sequentially during the pro rata period, due to performance triggers being breached, leading to additional build-up of CE. Class G and H notes do not amortise during the pro rata period, which improves the CE of all rated notes as the portfolios amortise. We expect Sapphire 2017-1 to move to pro rata amortisation in May 2019, subject to performance, similar to the other Sapphire transactions. Fitch's cash flow analysis incorporates transaction-specific principal pro rata conditions, subject to tranche balance floors for Sapphire 2016-1 and 2017-1 and a turbo that activates on the call date. The ratings for Sapphire 2014-1's class D and E notes are constrained at their current level by tranche thickness in the tail-end of the transaction. Sapphire 2014-1 and 2016-1 benefit from an excess-spread reserve that has trapped AUD500,000 and is available to cover losses and interest shortfalls. Sapphire 2014-1 has a liquidity reserve sized at the higher of 1.9% of the aggregate outstanding note balance and AUD400,000. Fitch's cash flow analysis for Sapphire 2016-1 and 2017-1 incorporates a liquidity facility sized at the higher of 2.2% for Sapphire 2016-1 and 2.1% for Sapphire 2017-1 of the aggregate outstanding note balances and AUD400,000. Sapphire 2017-1 also includes the accumulation of the reverse-turbo class RM notes, which have reached their AUD625,000 limit. The notes passed all relevant Fitch stresses applied in our cash flow analysis at their respective ratings. Fitch conducted additional sensitivity analysis by stressing the transactions' base-case assumptions. The ratings of the class F notes from Sapphire 2014-1 were constrained given the sensitivity to decreases in WARR. Macroeconomic Factors: Fitch expects steady mortgage performance, supported by sustained economic growth in Australia that is driven by stable forecast GDP growth of 2.8% and one 25bp cash rate increase in 2019. RATING SENSITIVITIES Fitch does not expect the ratings to be affected by any foreseeable change in performance. The prospect of a downgrade is remote, given the level of subordination to all rated notes, pool performance and adequate excess spread. Fitch conducted sensitivity analysis by stressing the transactions' base-case assumptions. The results of rating-sensitivity testing, using the cash flow model, are shown below. Sapphire XIII Series 2014-1 Trust Notes: Class A1/A2/B/C/D/E/F Ratings: AAAsf/AAAsf/AAAsf/AAAsf/Asf/Asf/BBBsf Rating sensitivity to increased defaults: Increase defaults by 15%: AAAsf/AAAsf/AAAsf/AAAsf/Asf/Asf/BBBsf Increase defaults by 30%: AAAsf/AAAsf /AAAsf/ AAAsf/Asf/Asf/BBBsf Rating sensitivity to decreased recoveries: Reduce recoveries by 15%: AAAsf/ AAAsf/ AAAsf/ AAAsf/Asf/Asf/BBsf Reduce recoveries by 30%: AAAsf/ AAAsf/ AAAsf/ AAAsf/Asf/BBsf/

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 has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessments of the asset portfolios as part of its ongoing monitoring. Fitch did not review the results of a third-party assessment conducted on the asset portfolio information prior to Sapphire 2014-1 and 2016-1 closing. Fitch sought to receive a third-party assessment conducted on the asset portfolio information prior to Sapphire 2017-1 closing, but none was made available for this transaction. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of Bluestone Group'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. SOURCES OF INFORMATION The information below was used in the analysis: Loan-by-loan data provided by Bluestone as at August 2018 Transaction reporting data provided by Bluestone as at August 2018 Loan enforcement details provided by Bluestone as at August 2018

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. The full list of rating actions is shown below: Sapphire XIII Series 2014-1 Trust AUD41.2 million Class A1 notes affirmed at 'AAAsf'; Outlook Stable AUD12.0 million Class A2 notes affirmed at 'AAAsf'; Outlook Stable AUD6.0 million Class B notes affirmed at 'AAAsf'; Outlook Stable AUD5.9 million Class C notes affirmed at 'AAAsf'; Outlook Stable AUD3.8 million Class D notes affirmed at 'Asf'; Outlook Stable AUD2.2 million Class E notes affirmed at 'Asf'; Outlook Stable AUD1.7 million Class F notes affirmed at 'BBBsf'; Outlook Stable Sapphire XIV Series 2016-1 Trust AUD9.1 million Class A1a notes affirmed at 'AAAsf'; Outlook Stable AUD40.0 million Class A1b notes affirmed at 'AAAsf'; Outlook Stable AUD11.1 million Class A2 notes affirmed at 'AAAsf'; Outlook Stable AUD6.3 million Class B notes upgraded to 'AAAsf'' from 'AAsf'; Outlook Stable AUD7.4 million Class C notes upgraded to 'AAsf' from 'Asf'; Outlook Stable AUD5.1 million Class D notes upgraded to 'A+sf' from 'BBBsf'; Outlook Stable AUD2.8 million Class E notes upgraded to 'Asf' from 'BBsf'; Outlook Stable AUD2.3 million Class F notes upgraded to 'BBB+sf' from 'BB-sf'; Outlook Stable Sapphire XVI Series 2017-1 Trust AUD70.1 million Class A1 notes affirmed at 'AAAsf'; Outlook Stable AUD15.4 million Class A2a notes affirmed at 'AAAsf'; Outlook Stable AUD27.3 million Class A2b notes affirmed at 'AAAsf'; Outlook Stable AUD11.5 million Class B notes upgraded to 'AAAsf' from 'AAsf'; Outlook Stable AUD12.8 million Class C notes upgraded to 'A+sf' from 'Asf' ; Outlook Stable AUD8.3 million Class D notes upgraded to 'BBB+sf' from 'BBBsf'; Outlook Stable AUD4.5 million Class E notes upgraded to 'BBB-sf' from 'BBsf'; Outlook Stable AUD3.8 million Class F notes upgraded to 'B+sf' from 'Bsf'; Outlook Stable Contacts: Lead Surveillance Analyst Hai Duong Le Associate Director +61 2 8256 0358

Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 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@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria APAC Residential Mortgage Rating Criteria (pub. 22 Oct 2018) https://www.fitchratings.com/site/re/10046448 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. 15 May 2018) https://www.fitchratings.com/site/re/10029600 Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 01 Aug 2018) https://www.fitchratings.com/site/re/10039504 Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 01 Aug 2018) https://www.fitchratings.com/site/re/10039505 Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 02 Feb 2018) https://www.fitchratings.com/site/re/10018549 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10048211 Solicitation Status https://www.fitchratings.com/site/pr/10048211#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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