(The following statement was released by the rating agency) Fitch Ratings-Sydney-May 17: Fitch Ratings has upgraded two and affirmed 12 classes of notes from five TORRENS Series transactions. The transactions consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans. All mortgages were originated by Bendigo and Adelaide Bank Limited (BEN, A-/Stable) and the notes were issued by Perpetual Trustee Company Limited in its capacity as trustee. The five transactions are: TORRENS Series 2014-1 Trust TORRENS Series 2014-2 Trust TORRENS Series 2017-1 Trust TORRENS Series 2017-2(P) Trust TORRENS Series 2017-3 Trust A full list of rating action follows at the end of this rating action commentary. KEY RATING DRIVERS The following three rating drivers apply to all five TORRENS Series transactions. Macroeconomic Factors: Fitch expects mortgage performance to remain stable, supported by sustained economic growth driven by stable forecast GDP growth of 2.7% in 2019 and no significant change to the official cash rate this year. TORRENS 2014-2 and TORRENS 2017-3 have large concentrations in Victoria, while TORRENS 2017-1 and TORRENS 2017-2(P) have concentrations in South Australia. Operational Risk: BEN is an authorised deposit-taking institution. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with other conforming lenders. Asset Analysis: Fitch did not run the asset model for TORRENS 2014-1, TORRENS 2017-2(P) or TORRENS 2017-3 in accordance with the agency's criteria, as the transactions do not have revolving periods, the outstanding ratings are all 'AAAsf', the review of pre-determined performance triggers indicates that the transactions display stable asset performance and there have been no significant changes to transaction structures. The asset model was run for TORRENS 2014-2 and TORRENS 2017-1. The 'AAAsf' weighted-average (WA) foreclosure frequency for TORRENS 2014-2 improved to 6.7%, from 7.4%, and remained unchanged for TORRENS 2017-1, at 8.9%. The 'AAAsf' lenders' mortgage insurance (LMI) dependent WA loss severity for TORRENS 2014-2 and TORRENS 2017-1 increased to 19.3%, from 18.9%, and decreased to 22.5%, from 22.6%, respectively. Both transactions had improved WA seasoning of 11 months and lower WA unindexed loan/value ratios of 57.1%, from 59.1%, for TORRENS 2014-2 and 61.2%, from 63.8%, for TORRENS 2017-1. As at 28 February 2018, 30+ days arrears of all five transactions tracked above Fitch's 4Q17 Dinkum Index 30+ days arrears of 1.0%. The 30+ days arrears ranged between 1.1% for TORRENS 2017-3 and 2.3% for TORRENS 2014-1. Transaction performance, however, has been strong, with only one loss of approximately AUD164,000 experienced in TORRENS 2014-1, which was covered by LMI and excess spread. TORRENS 2014-1, TORRENS 2014-2 and TORRENS 2017-1 all have 100% LMI coverage of the loan pool, whereas TORRENS 2017-2(P) and TORRENS 2017-3 have LMI coverage of 23.6% and 15.1%, respectively. LMI is provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength Rating: AA-/Stable) and Genworth Financial (NYSE:GNW) Mortgage Insurance Pty Limited (Insurer Financial Strength Rating: A+/Stable). Cash Flow Analysis: The class A, AB, B and C notes of TORRENS 2014-2 benefit from current credit enhancement of 16.4%, 4.6%, 1.8% and 1.0%, respectively. Structural features include an excess revenue reserve that has trapped AUD1.5 million and a liquidity facility sized at 1.3% of the aggregate performing loan balance, with a facility floor of AUD779,017. The class A and AB notes can withstand all relevant Fitch 'AAAsf' stresses applied in our cash flow analysis, the class B notes can withstand all of Fitch's 'AAsf' stresses and the class C notes can withstand all Fitch's 'AA-sf' stresses.
The class A1, A2, AB, B and C notes of TORRENS 2017-1 benefit from current credit enhancement of 9.6%, 6.3%, 3.5%, 1.6% and 0.7%, respectively. Structural features include an excess revenue reserve that has trapped AUD2.1 million and a liquidity facility sized at 0.9% of the aggregate performing loan balance, with a facility floor of AUD721,973. The class A1, A2 and AB notes can withstand all relevant Fitch 'AAAsf' stresses applied in our cash flow analysis, the class B notes can withstand all of Fitch's 'AA+sf' stresses, resulting in a one-notch upgrade, and the class C notes can withstand all of Fitch's 'Asf' stresses. RATING SENSITIVITIES Fitch does not expect the ratings to be affected by any foreseeable change in performance. The prospect of downgrade is remote, given the level of subordination to all rated notes, pool performance and adequate excess spread. The ratings of all class A notes for all five TORRENS Series transactions and the AB notes for TORRENS 2017-2(P) and TORRENS 2017-3 are LMI independent and therefore are unaffected by downgrades in the LMI providers' ratings. The remaining rated notes are LMI dependent and therefore sensitive to downgrades of the LMI providers' ratings. Fitch conducted sensitivity analysis on TORRENS 2014-2 and TORRENS 2017-1 by stressing the transaction's base-case assumptions. The results of rating sensitivity testing are shown below. Fitch also undertook defined sensitivity testing to show the model-implied sensitivities the transaction faces when recovery rate assumption stresses are increased to a level that is required to reduce the notes' rating by one full category, to non-investment grade and to 'CCCsf'. Fitch applies the recovery rate stress to the pre-LMI recovery rate to isolate the effect of a change in recovery proceeds at the borrower level. TORRENS 2014-2 Notes: A / AB / B / C Rating: AAAsf / AAAsf / AAsf / A+sf Rating sensitivity to increased defaults: Increase defaults by 15%: AAAsf / AAAsf / AAsf / A+sf Increase defaults by 30%: AAAsf / AAAsf / AAsf / Asf Rating sensitivity to decreased recoveries: Reduce recoveries by 15%: AAAsf / AAAsf / AAsf / A-sf Reduce recoveries by 30%: AAAsf / AA+sf / A+sf / BBB-sf Rating sensitivity to multiple factors: Increase defaults by 15%, reduce recoveries by 15%: AAAsf / AA+sf / AA-sf / BBB+sf Increase defaults by 30%, reduce recoveries by 30%: AAAsf / AA+sf / A-sf / BB+sf Decrease in recovery rate required to reduce note ratings: By one full category: not even with 0% recoveries / 22% / 28% / 17% To non-investment grade: not even with 0% recoveries / not even with 0% recoveries / 77% / 36% To 'CCCsf': not even with 0% recoveries for class A, AB, B notes / 58% TORRENS 2017-1 Notes: A1 / A2 / AB / B / C Rating: AAAsf / AAAsf / AAAsf / AA+sf / Asf Rating sensitivity to increased defaults: Increase defaults by 15%: AAAsf / AAAsf / AAAsf / AA+sf / Asf Increase defaults by 30%: AAAsf / AAAsf / AAAsf / AA+sf / Asf Rating sensitivity to decreased recoveries: Reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AA+sf / Asf Reduce recoveries by 30%: AAAsf / AAAsf / AAAsf / AAsf / Asf Rating sensitivity to multiple factors: Increase defaults by 15%, reduce recoveries by 15%: AAAsf / AAAsf / AAAsf / AA+sf / Asf Increase defaults by 30%, reduce recoveries by 30%: AAAsf / AAAsf / AA+sf / AAsf / Asf Decrease in recovery rate required to reduce note ratings: By one full category: not even with 0% recoveries / not even with 0% recoveries / 68% / 88% / 56% To non-investment grade: not even with 0% recoveries for class A1, A2, AB and B notes / 67% for class C notes To 'CCCsf': not even with 0% recoveries An upgrade to the ratings of TORRENS 2017-1's class B notes to 'AAAsf' and TORRENS 2014-2's class C notes to 'AA-sf' was considered, but the ratings were constrained by concentration tests and rating sensitivities, respectively. 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 assessment of the asset portfolio as part of its ongoing monitoring. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of BEN'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 BEN at end-February 2018 Transaction reporting data provided by BEN at end-February 2018 The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. The rating actions are as follows (as of February 2018 reporting): TORRENS 2014-1: Class A (AU0000TNHHB2) notes affirmed at 'AAAsf'; Outlook Stable TORRENS 2014-2: Class A (AU0000TOZHA4) notes affirmed at 'AAAsf'; Outlook Stable Class AB (AU3FN0026001) notes affirmed at 'AAAsf'; Outlook Stable Class B (AU3FN0026019) notes affirmed at 'AAsf'; Outlook Stable Class C (AU3FN0026027) notes upgraded to 'A+sf' from 'Asf'; Outlook Stable TORRENS 2017-1: Class A1 (AU3FN0034823) notes affirmed at 'AAAsf'; Outlook Stable Class A2 (AU3FN0034831) notes affirmed at 'AAAsf'; Outlook Stable Class AB (AU3FN0034849) notes affirmed at 'AAAsf'; Outlook Stable Class B (AU3FN0034856) notes upgraded to 'AA+sf' from 'AAsf'; Outlook Stable Class C (AU3FN0034864) notes affirmed at 'Asf'; Outlook Stable TORRENS 2017-2(P): Class A (AU3FN0036463) notes affirmed at 'AAAsf'; Outlook Stable Class AB (AU3FN0036471) notes affirmed at 'AAAsf'; Outlook Stable TORRENS 2017-3: Class A (AU3FN0037438) notes affirmed at 'AAAsf'; Outlook Stable Class AB (AU3FN0037446) notes affirmed at 'AAAsf'; Outlook Stable Contacts: Lead Surveillance Analyst Steve Jun Analyst +61 2 8256 0364 Fitch Australia Pty Ltd Level 15, 77 King St, Sydney NSW 2000 Committee Chairperson Claire Heaton Senior Director +61 2 8256 0361 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria 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 RMBS Lenders' Mortgage Insurance Rating Criteria (pub. 03 Apr 2018) https://www.fitchratings.com/site/re/10025397 Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) https://www.fitchratings.com/site/re/898537 Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) https://www.fitchratings.com/site/re/898538 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/10030407 Solicitation Status https://www.fitchratings.com/site/pr/10030407#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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