Fitch Upgrades Three and Affirms Three Flexi ABS Trust 2019-1 Tranches; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-17 March 2021: Fitch Ratings has upgraded three and affirmed three tranches of Flexi ABS Trust 2019-1. The Outlook is Stable. The transaction is a securitisation of small-balance unsecured consumer loans originated by Certegy Ezi-Pay Pty Ltd, whose ultimate parent is Humm Group Limited (hummgroup). The notes were issued by Perpetual Corporate Trust Limited in its capacity as trustee. Flexi ABS Trust 2019-1 ----A2 AU3FN0046868; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----A2-G AU3FN0046876; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----B-G AU3FN0046884; Long Term Rating; Upgrade; AAAsf; Rating Outlook Stable ----C-G AU3FN0046892; Long Term Rating; Upgrade; AA+sf; Rating Outlook Stable ----D AU3FN0046900; Long Term Rating; Upgrade; Asf; Rating Outlook Stable ----E AU3FN0046918; Long Term Rating; Affirmed; BB+sf; Rating Outlook Stable KEY RATING DRIVERS Performance Beats Base-Case Expectations: Obligor default is a key assumption in our quantitative analysis; the performance of the underlying assets has been better than our base-case default expectation and below the initially modelled scenarios. The portfolio experienced cumulative losses of 3.1% as at end-2020 and 30+ and 60+ day arrears percentages of 1.6% and 0.7%, respectively. This was below the 4Q20 ABS Dinkum Index of 2.0% and 1.2%. Strong excess spread since closing has covered all realised losses. We have revised the base-case default rate assumption to 4.0%, from 5.0%, to reflect the better performance and reduced remaining term to maturity. The recovery assumptions are unchanged at 0%. The default stress multiple was revised to 5.0x, from 4.0x, at the 'AAAsf' rating level for a more granular approach that better represents the distinct historical performance of each asset type. The transaction is amortising on a pro rata basis; this limits additional build-up of subordination and exposes the transactions to back-loaded defaults. We expect switch back to sequential payment at call if a charge-off occurs or if the average 60+ day arrears rate over six months is greater than 4.0% of the pool. The transaction would also switch back to sequential payment at call if the call is not exercised. Limited Liquidity Risk from Payment Holidays: We have reviewed the transaction's ability to survive a significant proportion of borrowers being offered and taking up a Covid-19 payment holiday. The transaction benefits from a liquidity reserve sized at 1.5% of the outstanding class A to E invested note balance. The transaction can withstand over 89% of the portfolio being granted a payment holiday before needing to draw on the liquidity reserve. This is well above the 0.2% of receivables under payment holiday arrangements as of end-2020. Low Servicing and Operational Risk: The servicer, Flexirent Capital Pty Ltd, is not rated. Servicer disruption risk is mitigated via back-up arrangements. The nominated back-up servicer, illion Australia Pty Ltd, has live access to the servicer's systems and can step in immediately upon servicer termination. The servicing and collections teams in Adelaide and Manila were able to work remotely and access the office with minimal disruption to servicing procedures during the coronavirus pandemic. All receivables have been originated by Certegy Ezi-Pay, a wholly owned subsidiary of hummgroup. Fitch reviewed the operations of the originator and servicer and found that they were comparable with those of other consumer lenders. Economic Rebound to Support Stable Outlook: Fitch expects loan performance to deteriorate in the near-term amid historically high unemployment, but to continue to support the Stable Outlook on the rated notes. Fitch forecasts Australia's GDP to expand by 3.8% in 2021, with the unemployment rate improving to 6.2%. GDP growth should stabilise at 2.7% in 2022 and the unemployment rate is likely to continue to improve, falling to 5.6%. The key rating drivers listed in the applicable sector criteria, but not mentioned above, are not material to this rating action. RATING SENSITIVITIES This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modelling process uses the modification of these variables to reflect asset performance in up and down environments. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance. Factors that could, individually or collectively, lead to positive rating action/upgrade: Macroeconomic conditions, loan performance and credit losses that are better than Fitch's baseline scenario or sufficient build-up of credit enhancement that would fully compensate for credit losses and cash flow stresses commensurate with higher rating scenarios, all else being equal. Upgrade Sensitivity The class A2, A2-G and B-G notes are rated 'AAAsf', which is the highest level on Fitch's scale. The ratings cannot be upgraded. Class C-G / D / E Current rating: AA+sf / Asf / BB+sf Decrease defaults by 10%; increase recoveries by 10%: AAAsf / A+sf / BBB-sf Factors that could, individually or collectively, lead to negative rating action/downgrade: A longer pandemic than Fitch expects that leads to further deterioration in macroeconomic fundamentals and consumers' financial position in Australia beyond Fitch's baseline scenario. 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 by stressing a transaction's initial base-case assumptions. Downgrade Sensitivity: Rating Sensitivity to Increased Default Rates Notes: A2, A2-G, B-G, C-G, D and E Current rating: AAAsf / AAAsf / AAAsf / AA+sf / Asf / BB+sf Defaults increase by 10%: AAAsf / AAAsf / AAAsf / AA+sf / A-sf / BBsf Defaults increase by 25%: AAAsf / AAAsf / AAAsf / AA-sf / BBB+sf / BB-sf Defaults increase by 50%: AAAsf / AAAsf / AA+sf / Asf / BBB-sf / Bsf Coronavirus Downside Scenario Sensitivity: Fitch has added a coronavirus downside sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in major economies and no meaningful recovery until around the middle of the decade. Under this more severe scenario, Fitch tested an increased base-case default rate, as shown below. Downside default expectation (and 'AAAsf' default multiple): 8.0% (3.3x) Impact on note ratings: Class A2, A2-G, B-G, C-G, D and E Rating: AAAsf / AAAsf / AAAsf / AA+sf / Asf / BB+sf Downside scenario: AAAsf / AAAsf / AAAsf / A+sf / BBB-sf / Bsf 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 made available. Fitch also conducted a review of a targeted sample of the originator'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 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 issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg Contacts: 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 Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). 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