Fitch Upgrades Five Sapphire RMBS Tranches, Affirms 24

(The following statement was released by the rating agency)

SYDNEY, March 20 (Fitch) Fitch Ratings has upgraded five and affirmed 18 
tranches of three Sapphire series transactions as well as six Bluestone 
Warehouse tranches of residential mortgage-backed floating rate notes. The 
transactions are securitisations of Australian non-conforming residential loans 
originated by Bluestone Group Pty Limited. 

The transactions are: Sapphire IX Series 2006-1 Trust (Sapphire IX); Sapphire X 
Series 2007-1 Trust (Sapphire X); Sapphire XII Series 2013-1 (Sapphire XII); and 
Bluestone Mortgages Warehouse Trust (Bluestone WH). 

The full list of rating actions can be found at the end of this commentary.

KEY RATING DRIVERS

Increased credit enhancement, stable asset performance, and strong excess income 
flows have resulted in upgrades of the Class MZ, BA and BZ notes of Sapphire IX, 
and the Class BZ and CA notes of Sapphire X. The upgraded Sapphire X notes had 
previously been downgraded by one notch in September 2008 due to high arrears 
and losses not covered by excess spread.

The affirmations reflect Fitch's view that available credit enhancement supports 
the relevant notes at their current ratings, the agency's expectations of 
Australia's economic conditions, and that the credit quality and performance of 
the underlying loans remain within the agency's expectations.

Arrears are high across the transactions, as is common in the non-conforming 
market. At 31 January 2014, 30+ days arrears levels ranged between 7.4% 
(Bluestone WH) and 12.6% (Sapphire X), compared to Fitch's 4Q13 non-conforming 
low-doc Dinkum RMBS Index of 7.82%. While total arrears remained high, there 
were significant reductions in the 90+ days buckets of Sapphire IX (4.2%, down 
from 7.5% in Jan-13) and Sapphire X (3%, from 7.4% in Jan-13).

Defaults and losses were stable across Sapphire IX and Sapphire X over the year 
to January 2014, with six losses totalling AUD816,635; and 5 losses totalling 
AUD532,927, respectively. The losses were covered by strong excess income 
available over the period. The recently issued Sapphire XII had experienced two 
losses since closing, totalling AUD230,663, which was covered by a charge-off to 
the unrated Class H note and by excess spread. Losses remain in line with 
Fitch's expectations.

The collateral underlying all four transactions is highly seasoned, with a 
weighted average (WA) seasoning of over seven years. As a result, the 
Fitch-calculated WA loan-to-value ratio reduced by between six and 11 percentage 
points after indexation was applied.

RATING SENSITIVITIES

Unexpected increases in delinquencies, defaults and losses would be necessary 
before any negative rating action were considered on the transactions' senior 
notes. The credit enhancement levels of the senior notes can support multiples 
of the arrears levels reported in the latest investor reports.

The protection provided by the unrated notes is increasing as the rated notes 
from Sapphire IX and X continue to amortise. As a result, any negative rating 
action on these transactions is considered very unlikely. Prospects for future 
upgrades are however constrained by future concentration issues.

Available credit enhancement is expected to increase for Sapphire XII as the 
rated notes pay down, thereby reducing sensitivities to combinations of 
increased delinquencies and defaults.

Fitch's initial key rating drivers and rating sensitivities are further 
discussed in Sapphire XII's corresponding New Issue report listed under "Related 
Research". Included as an appendix to Sapphire XII's report is a description of 
the representations, warranties, and enforcement mechanisms.

A comparison of the transactions' representations, warranties and enforcement 
mechanisms (RW&Es) to those of typical RW&Es for this asset class is also 
available by accessing the reports and/or links given under Related Research 
below.

Sapphire IX Series 2006-1 Trust:

AUD38.9m Class AA notes (AU300SAPA010) affirmed at 'AAAsf'; Outlook Stable; 

AUD5.0m Class AM notes (AU300SAPA028) affirmed at 'AAAsf'; Outlook Stable; 

AUD3.3m Class AZ notes (AU300SAPA036) affirmed at 'AAAsf'; Outlook Stable; 

AUD4.3m Class MA notes (AU300SAPA044) affirmed at 'AAsf'; Outlook Stable; 

AUD3.6m Class MZ notes (AU300SAPA051) upgraded to 'AAsf; from 'A+sf'; Outlook 
Stable; 

AUD3.5m Class BA notes (AU300SAPA069) upgraded to 'Asf' from 'BBB+sf'; Outlook 
Stable; 

AUD3.4m Class BZ notes (AU300SAPA077) upgraded to 'BBBsf' from 'BBsf'; Outlook 
Stable; and

AUD1m Class CA notes (AU300SAPA085) affirmed at 'Bsf'; Outlook Stable.

Sapphire X Series 2007-1 Trust:

AUD58.2m Class AA notes (AU3FN0001939) affirmed at 'AAAsf'; Outlook Stable;

AUD9.3m Class AM notes (AU3FN0001947) affirmed at 'AAAsf'; Outlook Stable; 

AUD4.9m Class AZ notes (AU3FN0001954) affirmed at 'AAAsf'; Outlook Stable; 

AUD7.8m Class MA notes (AU3FN0001962) affirmed at 'AAsf'; Outlook Stable; 

AUD5.4m Class MZ notes (AU3FN0001970) affirmed at 'A+sf'; Outlook Stable; 

AUD5.0m Class BA notes (AU3FN0001988) affirmed at 'BBB+sf'; Outlook Stable; 

AUD5.5m Class BZ notes (AU3FN0001996) upgraded to 'BBsf' from 'BB-sf'; Outlook 
Stable; and

AUD2.6m Class CA notes (AU3FN0002002) upgraded to 'Bsf' from 'B-sf'; Outlook 
Stable.

Sapphire XII Series 2013-1 Trust:

AUD90.1m Class A1 notes (AU3FN0021424) affirmed at 'AAAsf'; Outlook Stable;

AUD23.5m Class A2 notes (AU3FN0021432) affirmed at 'AAAsf'; Outlook Stable;

AUD5.9m Class B notes (AU3FN0021440) affirmed at 'AAsf'; Outlook Stable;

AUD6.8m Class C notes (AU3FN0021457) affirmed at 'Asf'; Outlook Stable;

AUD4.6m Class D notes (AU3FN0021465) affirmed at 'BBBsf'; Outlook Stable;

AUD2.6m Class E notes (AU3FN0021473) affirmed at 'BBsf'; Outlook Stable; and

AUD2.0m Class F notes (AU3FN0021481) affirmed at 'Bsf'; Outlook Stable.

Bluestone Mortgages Warehouse Trust:

AUD169.8m Class A notes affirmed at 'AAAsf'; Outlook Stable;

AUD6.8m Class B notes affirmed at 'AAsf'; Outlook Stable;

AUD5.8m Class C notes affirmed at 'Asf'; Outlook Stable;

AUD5.0m Class D notes affirmed at 'BBBsf'; Outlook Stable;

AUD0 Class E notes affirmed at 'BBBsf'; Outlook Stable; and

AUD3.6m Class F notes affirmed at 'BB-sf'; Outlook Stable.

Contacts:

Lead Surveillance Analyst

Brenden Asplin

Analyst

+61 2 8256 0340

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

Committee Chairperson

Natasha Vojvodic

Senior Director

+61 2 8256 0350

The source of information used to assess these ratings was the servicer, 
Bluestone Group Pty Limited. 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 - 
Amended", dated 1 August 2013; and "APAC Residential Mortgage Criteria Addendum 
- Australia - Amended", dated 1 August 2013, are available at 
www.fitchratings.com.

Related Research 

"Representations, Warranties and Enforcement Mechanisms in Global Structured 
Finance Transactions", dated 17 April 2012;

"Sapphire XII Series 2013-1 Trust" dated 16 December 2013; and

"Sapphire XII Series 2013-1 Trust - Appendix", dated 17 December 2013.

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

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

Representations, Warranties, and Enforcement Mechanisms in Global Structured 
Finance Transactions -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=676496

Sapphire XII Series 2013-1 Trust

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725081

Sapphire XII Series 2013-1 Trust - Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725080

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824390

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