Fitch Assigns Final Ratings to Medallion Trust Series 2014-1

(The following statement was released by the rating agency)

Link to Fitch Ratings' Report: Medallion Trust Series 2014-1 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=738036

SYDNEY, February 27 (Fitch) Fitch Ratings has assigned final ratings to 
Medallion Trust Series 2014-1's residential mortgage-backed floating-rate notes. 
The issuance consists of notes backed by first-ranking Australian residential 
mortgages originated by Commonwealth Bank of Australia Limited (CBA, 
AA-/Stable/F1+). The ratings are as follows:

AUD1,400.0m Class A1 notes: 'AAAsf'; Outlook Stable;

AUD610.0m Class A2 notes: 'AAAsf'; Outlook Stable;

AUD300.0m Class A3 notes: 'AAAsf'; Outlook Stable;

AUD0 Class A3-R notes: 'AAAsf'; Outlook Stable;

AUD150.7m Class B notes: 'A+sf'; Outlook Stable; and

AUD50.3m Class C notes: 'Not Rated'.

The notes are issued by Perpetual Trustee Company Limited in its capacity as 
trustee of Medallion Trust Series 2014-1.

At the cut-off date, the total collateral pool consisted of 9,800 loans 
totalling approximately AUD2,511m. Loans included in the pool were originated by 
CBA. The weighted average (WA) current loan-to-value (LVR) ratio was 58.8%, and 
the WA seasoning was 28 months. The pool is made up of 100% fully verified 
documentation loans. Loans covered by lenders' mortgage insurance (LMI), all 
provided by Genworth Financial Mortgage Insurance Pty Limited, are limited to 
approximately 14.6% of the pool. 

The pool has geographic diversification, with the largest state concentration 
being New South Wales (32.4%). Fitch has incorporated all the above factors in 
its credit analysis of the transaction. 

KEY RATING DRIVERS 

Experienced Originator: CBA has a long experience in mortgage lending and 
servicing, and originates loans through its nationwide branch network, mobile 
sales force, online and telephone sales operations and third-party mortgage 
brokers.

Strong Track Record: The Medallion series has performed in line with 
expectations, given their conservative portfolio characteristics. 30+ days 
delinquencies have generally tracked at approximately 1%, below Fitch's Dinkum 
index

Conservative Pool Characteristics: The WA seasoning of the portfolio is 28 
months, with a WA LVR of 58.8%, and an indexed LVR of 58.0%. Investment loans 
represent 24.8% of the pool by balance, with LMI provided by Genworth Financial 
Mortgage Insurance Pty Limited covering 14.6%. 

Soft-Bullet Note: The transaction includes a soft-bullet note (Class A3) with a 
refinancing date of February 2019, and a semi-annual interest coupon. At the 
refinancing date, the note will either be redeemed by the issuance of 
pass-through floating rate Class A3-R notes, or converted to pass-through 
floating rate Class A3-R notes.

Sequential/Pro-Rata Paydown: Interest is paid sequentially (after expenses) 
towards the Class A notes collectively, Class B, and then Class C note interest. 
The reimbursement of all losses is paid prior to the distribution of interest on 
Class C notes. Principal will be allocated pro rata towards the Class A and B 
notes if certain conditions are met, while Class C notes will not receive any 
principal until all rated classes are repaid in full. 

Liquidity Support: Liquidity support will be provided via excess spread, 
principal draws, and a liquidity facility sized at 3% of the mortgage pool. The 
liquidity facility will amortise, subject to a floor, while performance-based 
triggers are satisfied. 

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 result in potentially negative 
rating actions on the notes. Fitch evaluated the sensitivity of the ratings 
assigned to Medallion Trust Series 2014-1 to increased defaults and decreased 
recovery rates over the life of the transaction. Its analysis found that 
collectively the Class A notes' ratings remained stable under each of Fitch's 
medium and severe default and recovery scenarios. 

The analysis found the Class B notes' ratings were sensitive to a one-notch 
downgrade under an increased default stress of 15%. Under a reduced recovery 
rate stress (15%), the Class B note rating falls to A-sf. The rating was 
severely impacted by the combination scenario of 15% increased defaults and 15% 
decrease in recovery rates, with the rating at 'BBB+sf' under this scenario.

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

Contacts: 

Primary Analyst 

James Leung

Director

+612 8256 0322

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

 

Secondary Analyst

David Carroll

Director

+612 8256 0333

Committee Chairperson

Natasha Vojvodic

Director

+612 8256 0350

The source of information identified for this rating action was informed by 
information from CBA, as arranger and the issuer's counsel King & Wood 
Mallesons. 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; "Criteria for Servicing Continuity Risk 
in Structured Finance" dated 26 July 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

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

Criteria for Servicing Continuity Risk in Structured Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712935

APAC Residential Mortgage Criteria - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709855

APAC Residential Mortgage Criteria Addendum – Australia - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710259

Global Criteria for Lenders’ Mortgage Insurance in RMBS

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709255

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821831

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