Fitch Assigns Expected Ratings to HBS Trust 2014-1

(The following statement was released by the rating agency)

Link to Fitch Ratings' Report: HBS Trust 2013-1

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709676

SYDNEY, March 04 (Fitch) Fitch Ratings has assigned expected ratings to HBS 
Trust 2014-1's RMBS-backed floating-rate notes. The issuance consists of notes 
backed by first-ranking Australian residential mortgages originated by Heritage 
Bank Limited (Heritage, BBB+/Stable). The ratings are as follows:

AUD368m Class A notes: 'AAA(EXP)sf'; Outlook Stable; 

AUD20m Class AB notes: 'AAA(EXP)sf'; Outlook Stable; and

AUD12m Class B notes: Not Rated.

The notes are issued by Perpetual Trustee Company Limited in its capacity as 
trustee of HBS Trust 2014-1. The final ratings are contingent on the receipt of 
final documents conforming to information already received. 

At the cut-off date, the collateral pool consisted of 2,299 loans totaling 
approximately AUD400m. The loans included in the pool have been originated by 
Heritage. The weighted average current un-indexed loan-to-value (LVR) ratio was 
60%, the weighted average current indexed LVR was 57.4%, and the weighted 
average seasoning was 54.1 months. The pool is composed of 100% fully-verified 
documentation loans, of which investment loans make up 25%. 

KEY RATING DRIVERS

The 'AAA(EXP)sf' Long-Term Rating assigned to the Class A notes is based on the 
quality of the collateral; the 8% credit enhancement (CE) provided to the Class 
A notes by the subordinate AB, and B notes; and a liquidity facility of 1%. The 
rating also reflects Heritage's underwriting standards and servicing 
capabilities.

The ratings assigned to the Class AB notes are based on all the strengths 
supporting the Class A notes excluding their CE levels, but including the CE 
provided by each subsequent Class of notes.

Sequential/Pro Rata Paydown: Interest is paid sequentially (after expenses) 
towards the Class A, then AB, and finally B notes. The reimbursement of all 
losses is paid after the distribution of interest on the Class B. Principal will 
be allocated pro rata towards the class A, AB, and B notes if the step-down 
conditions are met.

 

Sufficient Liquidity Support: Liquidity support will be provided via excess 
spread, principal draws and a liquidity facility sized at 1.0% of the notes' 
balance, with a facility floor of AUD400,000. The liquidity facility will 
amortise, subject to the floor, while performance-based triggers are satisfied. 

LMI Cover of 100%: The entire pool benefits from lenders' mortgage insurance 
(LMI) provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial 
Strength rating: AA-/Stable) (99.9%) and Housing Loans Insurance Corporation 
(0.1%).

Strong Track Record: Heritage is a mutual authorised deposit-taking institution 
(ADI) regulated by APRA that serves approximately 300,000 members throughout 
Australia. Heritage is the originator, manager and servicer of the HBS Trust 
programme. The arrears level of securitised HBS Trust transactions has tracked 
below Fitch's Dinkum Index for prime RMBS. 

RATING SENSITIVITIES

Unexpected decreases in residential property value, increases in the frequency 
of foreclosures, and loss severity on defaulted mortgages could produce loss 
levels higher than Fitch's base case, which could in turn result in potentially 
negative rating actions on the notes. Fitch has evaluated the sensitivity of the 
ratings assigned to HBS Trust 2014-1 to increased defaults and decreased 
recovery rates over the life of the transaction. Its analysis found that 
collectively the Class A and AB notes' ratings remained stable under Fitch's 
medium (15% increase) and severe (30% increase) default scenarios.

Recovery scenarios, both medium (15% decrease) and severe (30% decrease), did 
not impact the rating of the Class A notes. The analysis found the Class AB 
notes' ratings were sensitive to a severe stress (30% decrease) in recovery 
rates. 

The ratings of the Class A and AB notes' were both impacted by the severe 
combination scenario of 30% increased defaults and 30% decrease in recovery 
rates; with ratings at 'AAsf' under this scenario.

Key Rating Drivers and Rating Sensitivities are further discussed in the 
corresponding presale report entitled "HBS Trust 2014-1", published today. 
Included as an appendix to the report are a description of the representations, 
warranties, and enforcement mechanisms.

Contacts: 

Primary Analyst 

Courtney Miller

Analyst

+612 8256 0347 

Fitch Australia Pty Ltd., Level 15, 77 King St, Sydney, NSW 2000

 

Secondary Analyst

Ben Newey

Director

+612 8256 0341 

Committee Chairperson

Natasha Vojvodic

Senior Director

+612 8256 0350 

The source of information identified for this rating action was informed by 
information from Heritage Bank Limited, Australia & New Zealand Banking Group 
Limited as arranger, and their counsel Herbert Smith Freehills. The issuer has 
informed Fitch that not all relevant underlying information used in the analysis 
of the rated notes is public.

Applicable criteria, "Global Structured Finance Rating Criteria", dated 24 May 
2013; "Counterparty Criteria for Structured Finance and Covered Bonds", dated 13 
May 2013; "Counterparty Criteria for Structured Finance and Covered Bonds: 
Derivative Addendum", dated 13 May 2013; "APAC Residential Mortgage Criteria", 
dated 1 August 2013; "APAC Residential Mortgage Criteria Addendum - Australia", 
dated 1 August 2013; and "Global Criteria for Lender's Mortgage Insurance in 
RMBS", dated 1 August 2013 are available at www.fitchratings.com.

Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: 
iselle.gonzalez@fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: 

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Global Criteria for Lenders’ Mortgage Insurance in RMBS - Effective from 7 
September 2012 - 31 July 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684475

APAC Residential Mortgage Criteria - Effective from 3 August 2012 – 1 August 
2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684630

APAC Residential Mortgage Criteria Addendum – Australia – Effective from 3 
August 2012 – 1 August 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684474

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative 
Addendum

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707156

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822468

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licence no. 337123) which authorises it to provide credit ratings to wholesale 
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