Fitch Upgrades Class AB of Interstar 2005-3E to 'AAAsf'; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-December 18: Fitch Ratings has upgraded the AUD35.9 class AB note from Interstar Millennium Series 2005-3E Trust to 'AAAsf' from 'Asf', as the currency swap and counterparty risks are no longer present in the transaction as the pound sterling class A2 note has been paid in full. The Outlook is Stable. The transaction is a securitisation of Australian conforming residential mortgages originated through a network of mortgage originators and brokers under the Interstar Millennium Trust Securitisation programmes. KEY RATING DRIVERS Currency Counterparty Risk Eliminated: The currency swap and counterparty risks are no longer present for the transaction after the class A2 was paid in full on 22 October 2018. This means the 'Asf' rating cap on the class AB note stemming from currency swap and counterparty risks has been removed. The class AB note would be rated 'AAAsf' without the cap. The Royal Bank of Scotland Group (LON:RBS) plc (A/Stable/F1) was the currency-swap provider and was upgraded in December 2018 after the class A2 notes were paid in full. The bank had been collateralising in accordance with transaction documents, which reflected Fitch's counterparty criteria at the time of the transaction's closing. Fitch assessed that the gap in collateralisation between Fitch's then-current counterparty criteria and the transaction documents was significant and capped the class A2 and AB notes at 'Asf' in accordance with the minimum derivative counterparty ratings. Operational Risk: Advantedge Financial Services Pty Ltd, the transaction servicer, has extensive experience servicing and managing its mortgage portfolio. Fitch undertook an onsite operational review and found that the operations of the servicer were comparable with market standards and that there were no material changes that may affect Advantedge's ongoing ability to undertake administration and collection activities. Advantedge's collection timelines, policies and procedures are in line with other conforming lenders in Australia, as evident from the historical performance of Interstar's RMBS transactions after taking into account the nature of the loan products in older transactions. Asset Analysis: The asset model was not re-run for the transaction in accordance with Fitch's criteria, as the notes are rated at the highest possible level; asset composition and performance had not deteriorated materially since the last asset-model analysis; and there have been no material changes to asset assumptions. At end-October2018, 30+ day arrears of 3.0% and 90+ day arrears of 1.7% have been above Fitch's 3Q18 Dinkum RMBS Index of 1.04% and 0.53%, respectively. We expect arrears as a percentage to increase due to the small pool size. Arrears by balance remain low and stable and the increase in percentages has not corresponded with an overall rise in losses. Performance has been strong, with loss levels at a low 0.8% of the original pool. All losses that were not covered by lenders' mortgage insurance (LMI) have been covered by excess spread or residual unit holders. Liability Analysis: Cash flow analysis was not performed for the transaction, as all rated notes were rated at the highest possible level; cash flow distributions have been within Fitch's expectations since the last cash flow model analysis; and there have been no material changes to cash flow assumptions. The transaction pays sequentially for its entire life and credit enhancement for the class AB notes of 55.4% is provided by the class B notes. Macroeconomic Factors: Fitch expects stable mortgage performance, supported by sustained economic expansion in Australia. The economic outlook is driven by steady forecast GDP growth of 2.8% and one 25bp cash rate increase in 2019. RATING SENSITIVITIES We do not expect the ratings to be affected by any foreseeable change in performance. The ratings of the class AB notes are LMI independent and therefore not sensitive to downgrades to the LMI providers' ratings. 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 pool and transaction. 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. Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. Subsequent transaction performance has been consistent with Fitch's expectations, given the operating environment, and the agency is therefore satisfied that the asset pool information relied upon for its rating analysis is adequately reliable. As part of its ongoing monitoring, Fitch reviewed a small targeted sample of 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 was provided by the servicer, Advantedge; Loan-by-loan data as at 31 October 2018. Transaction reporting data as at 31 October 2018 Loan enforcement details provided as at 31 October 2018. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. Contacts: Lead Surveillance Analyst Hai Duong Le Associate Director +61 2 8256 0358 Fitch Australia Pty Ltd Level 15, 77 King Street, 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@thefitchgroup.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 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. 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 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10056278 Solicitation Status https://www.fitchratings.com/site/pr/10056278#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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