(The following statement was released by the rating agency)
SYDNEY, July 21 (Fitch) Fitch Ratings has assigned Australia and New Zealand
Banking Group Limited's (ANZ, AA-/Stable/F1+) Series 2013-3 issue of EUR150m
mortgage covered bonds a 'AAA' rating. The Outlook is Stable. The fixed-rate
bonds are due in January 2029 and benefit from a 12-month extendable maturity.
This brings the total issuance from ANZ's covered bond programme to AUD11.05bn.
KEY RATING DRIVERS
The rating is based on ANZ's Long-Term Issuer Default Rating (IDR) of 'AA-', a
Discontinuity Cap (D-Cap) of 2 (high), and an asset percentage (AP) of 87%,
which is equal to Fitch's breakeven AP for a 'AAA' rating, supporting a 'AA'
rating on a probability of default (PD) basis, and a 'AAA' rating after giving
credit for recoveries. The Outlook on the covered bonds reflects the Stable
Outlook on ANZ's IDR.
The D-Cap's main driver is the high risk assessment for liquidity gap and
systemic risk. This is mainly driven by a weak pre-maturity test for the
programme's hard bullet maturity bonds, which allows for a mandatory six-month
asset sale period prior to a scheduled hard bullet covered bond maturity. Fitch
has assessed the time required to sell cover pool assets in Australia to be 12
months in a stressed market scenario. The D-Cap of 2, when combined with the
institution's IDR and recovery uplift, continues to support a 'AAA' rating on
the covered bonds.
As of 31 May 2013, the cover pool consisted of 52,747 loans secured by
first-ranking mortgages of Australian residential properties with a total
outstanding balance of AUD15.1bn. The portfolio is wholly made up of full
documentation loans which have a weighted average current loan-to-value ratio of
64.2%, and a weighted average seasoning of 19.7 months. The cover pool is
comprised of: floating-rate loans 92.2%; fixed-rate loans 7.8%; and interest
only loans 27.8%. The mortgage portfolio is geographically distributed across
Australia's states, with the largest concentrations being in Victoria (33.6%)
and New South Wales (29.1%).
In a 'AAA' scenario, Fitch has calculated a weighted average frequency of
foreclosure for the cover assets of 9%, and a weighted average recovery rate of
53.1%. The agency's mortgage default analysis is based on its Australian
residential mortgage criteria.
Maturity mismatches are significant, with the weighted-average residual life of
the assets at 16.5 years, and of the liabilities at 4.4 years.
KEY RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to a downgrade if: the issuer's Long-Term
IDR is downgraded by two or more notches; the D-Cap falls by more than one
category; or if the programme's AP rises above the breakeven AP of 87%.
+61 2 8256 0361
Fitch Australia Pty Ltd., Level 15, 77 King Street, Sydney NSW 2000
+61 2 8256 0322
+61 2 8256 0388
The source of information used to assess these ratings was Australia and New
Zealand Banking Group Limited. The issuer has informed Fitch that not all
relevant underlying information used in the analysis of the rated bonds is
Applicable criteria: 'Covered Bonds Rating Criteria', dated 10 September 2012;
'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 3 August 2012; 'APAC Residential Mortgage Criteria Addendum - Australia',
dated 3 August 2012; 'Covered Bonds Rating Criteria - Mortgage Liquidity &
Refinance Stress Addendum' dated 3 June 2013; and 'Global Criteria for Lender's
Mortgage Insurance in RMBS', dated 7 September 2012, are available at
Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email:
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Counterparty Criteria for Structured Finance and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds: Derivative
APAC Residential Mortgage Criteria
APAC Residential Mortgage Criteria Addendum â Australia
Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum â
Effective 14 November 2012 to 3 June 2013
Global Criteria for Lendersâ Mortgage Insurance in RMBS
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