National RMBS Trust Series

Transcription

1 Presale: National RMBS Trust Series Primary Credit Analyst: Elizabeth A Steenson, Melbourne (61) ; elizabeth.steenson@spglobal.com Secondary Contact: Luke Elder, Melbourne (61) ; luke.elder@spglobal.com Table Of Contents Rationale Strengths And Weaknesses Transaction Structure Note Terms And Conditions Reliance On Lenders' Mortgage Insurance Rating-Transition Analysis Origination And Servicing Credit Assessment Loan Pool Profile Cash-Flow Analysis Commingling And Servicer Risk Legal And Counterparty Risks MAY 29,

2 Table Of Contents (cont.) Analytical Contacts Related Criteria And Research MAY 29,

3 Presale: National RMBS Trust Series This presale report is based on information as of May 30, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings As Of May 30, 2016 Class Preliminary rating* Preliminary amount (A$ mil.) Credit support before credit is given to mortgage insurance (%) Credit support after credit is given to mortgage insurance (%) Credit support provided (%) A AAA (sf) 690,000, % 8.0 B AA- (sf) 45,000, % 2.0 C NR 15,000,000 N/A N/A N/A *The rating on each class of securities is preliminary and subject to change at any time. NR--Not rated. N/A--Not applicable. Profile Expected closing date June 8, 2016 Final maturity date December 2047 Collateral Fully amortizing and interest only, reverting to fully amortizing Australian-dollar loans to prime-quality borrowers, maturing no later than 18 months before the final maturity date, secured by first or second-registered mortgages over Australian residential properties Issuer Perpetual Trustee Co. Ltd. as trustee for the National RMBS Trust Series Servicer Primary credit enhancement National Australia Bank Ltd. Note subordination, lenders' mortgage insurance on 10.4% of the portfolio, and excess spread, if any. Lenders' mortgage insurance covers 100% of the principal balance of insured loans, plus accrued interest and reasonable costs of enforcement (see "Reliance On Lenders' Mortgage Insurance") Supporting Ratings Lenders' mortgage insurers Interest-rate swap provider Liquidity facility provider Bank account provider Genworth Financial Mortgage Insurance Pty Ltd. and QBE Lenders' Mortgage Insurance Ltd. National Australia Bank Ltd. National Australia Bank Ltd. National Australia Bank Ltd. Loan Pool Statistics As Of May 9, 2016 Total number of loans 2,489 Total value of loans (A$) 750,919,572 Current maximum loan size (A$) 1,300,00 Average loan size (A$) 301,695 Maximum current loan-to-value (LTV) ratio (%) 90.0 Weighted-average current LTV ratio (%) 58.7 Weighted-average loan seasoning (months) 30.3 Note: All portfolio statistics are calculated on a consolidated loan basis. MAY 29,

4 Rationale The preliminary ratings assigned by S&P Global Ratings to the prime floating-rate residential mortgage-backed securities (RMBS) to be issued by Perpetual Trustee Co. Ltd. as trustee for National RMBS Trust Series (the issuer) reflect the following factors. The credit risk of the underlying collateral portfolio (discussed in more detail under "Credit Assessment") and the credit support provided to each class of notes are commensurate with the preliminary ratings assigned. Credit support is provided by subordination and lenders' mortgage insurance (LMI) cover for 10.4% of the collateral portfolio. The credit support provided to the rated notes is sufficient to cover the assumed losses at the applicable rating stress. The assessment of credit risk takes into account National Australia Bank Ltd. (NAB)'s underwriting standards and approval process (discussed in more detail under "Origination And Servicing"), which are consistent with industry-wide practices, the servicing quality of NAB (discussed in more detail under "Origination And Servicing"), and the support provided by the LMI policies on 10.4% of the portfolio (see "Reliance On Lenders' Mortgage Insurance"). The rated notes can meet timely payment of interest, and ultimate payment of principal under the rating stresses. Key rating factors are the level of subordination provided, the LMI cover, the interest-rate swaps, the principal draw function, the provision of a liquidity facility, and the provision of an extraordinary expense reserve. Our analysis is on the basis that the notes are fully redeemed by their legal final maturity date and we do not assume the notes are called at or beyond the call date. Our ratings also take into account the counterparty exposure to NAB as interest-rate swap provider, liquidity facility provider, and bank account provider. Interest-rate risk between any fixed-rate mortgage loans and the floating-rate obligations on the notes will be appropriately hedged via interest-rate swaps (discussed in more details under "Interest-Rate Risk"). These counterparty exposures meet S&P Global Ratings' counterparty criteria. We also have factored into our ratings the legal structure of the issuer, which is established as a special purpose entity and meets our criteria for insolvency remoteness. Strengths And Weaknesses Strengths The strengths of the transaction observed in the rating analysis are: For the class A notes, the 8.0% credit support provided by the subordinated class B and class C notes exceeds the level of credit support commensurate with a 'AAA (sf)' rating, and is more than sufficient to maintain the ratings on the class A notes--assuming no deterioration in the underlying pool--should the ratings on the LMI providers be lowered or removed. Some 73.5% of the collateral portfolio represents loans with a current loan-to-value (LTV) ratio of less than or equal to 75%, with a low weighted-average LTV ratio for the pool of 58.7%. S&P Global Ratings views LTV ratios as a key determinant of credit risk in RMBS transactions and adjusts credit support upward for loans with an LTV ratio greater than 75% and downward for loans with an LTV ratio less than 75%. The portfolio is reasonably seasoned, with a weighted-average seasoning of 30.3 months. Around 12.2% of the MAY 29,

5 portfolio is seasoned by more than five years. We consider a loan less likely to default five years after origination; we have observed the majority of defaults occur within the initial five years. Weaknesses Weaknesses identified with respect to the transaction are: NAB's valuation policy allows for circumstances in which the security property may not require a full valuation. In this portfolio, if the loan met certain criteria, NAB might have based the valuation of individual properties on a drive-by assessment, provision of a source document--valuer-general assessment or contract of sale--or a database or desktop valuation report. Valuation methods alternative to that of a full valuation could introduce less certainty about the realizable value of the security property, thereby increasing the loss on sale, which we have factored into our credit support calculations. The portfolio has a 19.7% exposure to security properties classified as nonmetropolitan by S&P Global Ratings. We have increased the default frequency and assumed a longer foreclosure period for such loans. This reflects our view that defaults on nonmetropolitan properties would be more frequent during periods of economic stress because of population and economic factors. Properties are also more likely to be on the market longer in such postcodes. Transaction Structure The structure of the transaction is shown in chart 1. MAY 29,

6 Chart 1 We understand that transaction counsel will lodge the relevant financing statements on the Personal Property Securities Register in connection with the security interest. MAY 29,

7 Note Terms And Conditions Interest payments All classes of notes are rated on a "timely interest, ultimate principal" basis. The notes are floating-rate, pass-through securities, paying a margin over the one-month bank-bill swap rate on the invested amount of the notes. Interest payments are made sequentially to each class of notes, with interest to the unrated class C note holders ranking subordinated to reimbursement of charge offs. The margin on the class A notes will increase by 0.25% from the call date (refer to "Call date"). Interest ceases to accrue on a class of notes during any period in which it has a stated amount of zero. Principal allocation and pro rata pay down triggers During the first two years of the transaction, principal payments--after application as principal draws if necessary to cover income shortfalls or to fund redraws--will be passed through to note holders on a sequential-payment basis. After the initial two years from closing, and provided the pro rata paydown triggers are met, principal payments can be passed through to the class A, class B, and class C notes on a pro-rata basis until the aggregate outstanding principal balance of the portfolio reaches 10% of its initial amount, at which point the payment structure must revert to sequential. The pro-rata pay down triggers require that: The credit support for the class A notes must be at least 18%; There are no charge offs in respect of any class of notes that have not been reimbursed; The aggregate outstanding principal balance of loans that are in arrears for 60 days or more, on a four-month rolling average basis, does not exceed 4%; and The portfolio balance is not less than 10% of its balance on the issue date. Given the pass-through nature of the notes, the actual date on which the principal amount of the notes will be fully repaid will be determined by the actual prepayment rate experience on the loan portfolio. As a result, the risk of mortgage prepayments is borne by note holders. Chart 2 shows the annualized prepayment speeds of the NAB RMBS securitized loan portfolios, against Standard & Poor's Prepayment Index (SPPI), which measures prepayment rates for Australian prime RMBS. The prepayment speeds encompass both the scheduled and unscheduled principal payments on the mortgage loans. MAY 29,

8 Chart 2 Loss allocation Charge offs will be first allocated to the class C notes until their outstanding balance is reduced to zero, followed by the class B notes, then to the class A notes. Call date On any payment date after the aggregate outstanding balance of the collateral pool reaches 10% of its initial amount, the manager can direct the issuer to call the notes and repay them at their invested amount plus accrued interest. They may only be redeemed at a lesser amount if consent via an extraordinary resolution of note holders of the relevant class is obtained. Reliance On Lenders' Mortgage Insurance Some 10.4% of the collateral pool is insured by an LMI policy provided by a mortgage insurer that has an insurer financial strength rating of 'A+'. The LMI policies cover the outstanding mortgage loan principal, accrued interest, and reasonable enforcement expenses on the defaulted mortgage loans. The policies contain terms and conditions that allow the insurer to reduce or deny a claim in certain circumstances. If MAY 29,

9 a claim is reduced and results in a loss to the trust, then the issuer could offset that loss by applying excess spread to cover those losses before making any distribution to beneficiaries. Under S&P Global Ratings' "Methodology For Assessing Mortgage Insurance And Similar Guarantees And Supports In Structured and Public Sector Finance And Covered Bonds" criteria, published on Dec. 7, 2014, the overall amount of credit given to LMI is the product of the stated coverage of the LMI policy, the insurer's estimated capacity to pay for a given rating scenario, and the estimated claims pay-out ratio for a given issuer. To adjust for the insurer's capacity to pay, S&P Global Ratings looks to the LMI provider's issuer credit rating. When sizing the credit support for the 'AAA (sf)' rated notes, S&P Global Ratings assumes that 45% of claims to 'A+' rated LMI providers will be denied in full. In addition, the estimated claims payout ratio reflects the categorization of NAB into CA1 due to a minimal level of claims adjustments, clearly documented servicing practices, and detailed procedures to adherence to LMI policies and procedures. The claims adjustment rate for CA1 is 10%. Rating-Transition Analysis Scenario analysis: Lenders' mortgage insurance The principal rating-transition risk in most Australian prime RMBS transactions is a downward transition in the rating on one or more of the lenders' mortgage insurers. We consider the rating-transition risk for the 'AAA (sf)' rating on the class A notes to be low because the credit support from the subordination of the class B and class C notes is higher than the minimum credit support before giving credit to LMI. We consider the rating-transition risk for the 'AA- (sf)' rating on the class B notes to be moderate. The transaction can convert to pro-rata principal payment at least two years after the transaction closes, during which time credit support for the class B notes would continue to accumulate. After that time, and provided all other step-down tests are satisfied, principal receipts can be paid among all classes and credit support for the class B notes would cease to accumulate. Assuming that there is no deterioration in the portfolio credit quality and performance, table 1 details the level of subordination that would support a 'AA- (sf)' rating on the class B notes if the rating on Genworth Financial Mortgage Insurance Pty Ltd. (Genworth) or QBE Lenders' Mortgage Insurance Ltd. (QBE) were lowered by one notch to 'A', at the current estimated claims payout ratio. It also details the hypothetical rating on the class B notes if the rating on the LMI provider was removed today. Table 1 Class B Rating Sensitivity To Lowering Of Rating On Lenders' Mortgage Insurer Lenders' mortgage insurers (and ratings) subject to hypothetical joint downgrades Subordination required to support 'AA- ' rating on class B notes (%) Rating transition of class B notes if no additional support were provided Genworth 'A' 1.88 AA- MAY 29,

10 Table 1 Class B Rating Sensitivity To Lowering Of Rating On Lenders' Mortgage Insurer (cont.) Lenders' mortgage insurers (and ratings) subject to hypothetical joint downgrades Subordination required to support 'AA- ' rating on class B notes (%) Rating transition of class B notes if no additional support were provided QBE 'A' 1.88 AA- Both Genworth and QBE 'A' 1.91 AA- No credit to LMI 2.31 A+ S&P Global Ratings believes the other major factors that would drive negative rating changes in this transaction to be a significant deterioration in asset portfolio performance and a lowering of the rating of the interest-rate swap provider or liquidity facility provider within the transaction. However, the transaction documentation includes downgrade language that requires the relevant counterparty to take certain actions should its rating be lowered to below the minimum level. Scenario analysis: Property market value decline We carried out a scenario analysis to determine the impact on the ratings--assuming no credit to LMI--if property values were to decrease by 10% during a short period of time. After adjusting down property values by 10% and increasing LTV ratios for this impact, we applied our standard default frequency and loss-severity assumptions (45% market value decline at the 'AAA (sf)' level) to arrive at the implied credit assessments in table 2. Table 2 shows the credit support and the implied credit assessments (credit only) should this scenario occur, and all else remained constant. The implied credit assessments take credit into consideration only, and do not consider any yield or liquidity issues that may be relevant at the time. Table 2 Credit Support And Implied Credit Assessments Under The Scenario Class Credit support at 'AAA ' pre-lmi (%) Implied credit assessment pre-lmi A 7.19 aaa Credit support at 'AA- ' pre-lmi (%) Implied credit assessment pre-lmi B 4.35 bbb LMI--Lenders' mortgage insurance. Origination And Servicing We assess the quality of the origination, underwriting, and servicing of the loans as part of our credit analysis because it can affect the performance of the portfolio. NAB's underwriting practices and standards are largely in line with industry standards. NAB sources its residential mortgage loans through proprietary channels such as branches, mobile bankers, business bankers, private bankers and agribusiness bankers, as well as third-party channels, including accredited third-party brokers, introducers, and mortgage managers. NAB has recently boosted its relationships with mobile bankers, MAY 29,

11 mortgage managers, and brokers in a bid to increase volumes and market share. Growth in broker-sourced loans has been double that of the direct channel during the past three years, reflecting NAB's strategy and the fact that its use of brokers historically had not been as high as some of its industry peers. By tracking the performance of its mortgage loan portfolio by origination source, NAB has observed that broker loans have performed better than direct loans during the past five years. Loans are initially assessed by an automated loan-decisioning system, which assigns a credit score and risk grade to each application. About 72% of applications meet the requisite business rules and credit scores, and are automatically approved. Some 8%-9% of applications are automatically declined, based on credit score, serviceability, or credit policy. NAB applies strict limits to the percentage of such loans that can then be manually approved. The remainder is automatically referred, based on risk grade, to a credit manager who holds the required level of delegated lending authority. About half of referred loans are approved. NAB conducts hindsight reviews on 100% of its securitized mortgage loans. NAB's assessment of loan serviceability factors in the borrower's employment status, sources of and credit to income, other financial commitments, and living expenses, and is in line with industry standards. We have taken into account in our credit assessment this and the interest-rate floors and buffers that NAB applies. In determining the market value decline assumption we have factored in the type of valuation that NAB obtained when the loans were originated. A business rule engine determines the type of valuation, which is based on risk grade and factors such as origination channel, geographic location, property size, and LTV ratio. The valuation method for properties in the collateral portfolio may include drive-by, valuer-general assessment, desktop, full valuation, and contract of sale. NAB applies LTV ratio caps to certain postcodes, based on its assessment of risk, and reviews them on a quarterly basis. In our assessment of NAB's servicing, we have taken into account its financial strength, arrears management processes, and policies, as well as its historical arrears and loss performance. NAB Assist, which undertakes NAB's servicing and early stage collections functions, is centralized in Melbourne, Victoria. The management of accounts greater than 45 days past due is undertaken by NAB's mortgage review teams. NAB uses programmable predictive dialers for borrower contact and notification. Delinquent borrowers using the telephone banking service are automatically diverted to credit or collections operations. NAB adopts a risk-based approach to arrears management, with actions for early stage arrears ranging from short message service (SMS) messages at one and two weeks past due for accounts deemed to be low risk, through to telephone contact at day two as well SMS and letters within the first nine days for accounts deemed to be high risk. Borrower performance data are stored electronically, which enables the historical records of borrowers to be recalled during the loan-approval process. NAB measures and manages arrears with reference to the scheduled balance. Under the scheduled balance, a mortgage is only deemed delinquent when the actual loan balance exceeds the scheduled balance. Chart 3 compares the level of arrears on residential mortgage loans securitized under the NAB RMBS programs compared with the Standard & Poor's Performance Index (SPIN) for Australian prime mortgages. MAY 29,

12 Chart 3 To date, more than A$24 billion of RMBS has been issued through the NAB RMBS program and rated by S&P Global Ratings (chart 4). MAY 29,

13 Chart 4 Credit Assessment The portfolio comprises full-documentation, prime residential mortgage loans originated by NAB. This is a closed pool, which means no additional loans will be assigned to the transaction after the closing date. We have assessed the credit quality of the collateral to determine the minimum credit support levels for this transaction. Among the strengths we identified are the seasoning, low LTV ratios, all loans being assessed on a full-documentation basis, and the geographic diversity of the portfolio. The key weaknesses in the credit quality of the portfolio are the exposure to security properties in postcodes we classify as nonmetropolitan, self-employed borrowers, and loans for which the purpose was to finance an investment property. Our credit support calculation takes into account that borrowers can redraw prepaid principal under the mortgage loans which would increase the LTV ratio as borrowers draw additional funds up to the loan's scheduled balance. In calculating the minimum credit support levels, we compare the characteristics of the portfolio with an archetypical pool and apply multiples as a way to increase or decrease credit support levels to reflect higher or lower credit risk compared with the characteristics of the archetypical pool. The credit support levels comprise two components: MAY 29,

14 default frequency and loss severity. A summary of this calculation is shown in table 3. Table 4 lists the five main default frequency characteristics that have deviated from the archetypical pool. Table 3 Summary Credit Assessment Total Pool AAA AA- (a) Default frequency (%) (b) Loss severity (%) (c) Credit support required before credit to lenders' mortgage insurance (LMI) (a) x (b) (%) (d) Credit to LMI (%) (e) Credit support required after credit to LMI (c) (d) (%) Assumptions Market value decline (%) Weighted-average recovery period (months) Interest rate through recovery period (%) Table 4 Rating Multiples Criteria Default frequency multiple (x) Loan-to-value ratio Nonmetro location Seasoning Employment Property occupancy Loan Pool Profile The pool as of May 9, 2016, is summarized in table 5. The details of the pool contained in the tables were calculated after consolidating split loans. Table 5 Loan Pool Characteristics Current loan size distribution (A$) Value of loans (%) Less than or equal to 100, Greater than 100,000 and less than or equal to 200, Greater than 200,000 and less than or equal to 300, Greater than 300,000 and less than or equal to 400, Greater than 400,000 and less than or equal to 600, Greater than 600,000 and less than or equal to 800, Greater than 800,000 and less than or equal to 1,000, Greater than 1,000,000 and less than or equal to 1,500, Current loan-to-value ratio distribution (%) Less than or equal to MAY 29,

15 Table 5 Loan Pool Characteristics (cont.) Current loan size distribution (A$) Value of loans (%) Greater than 50 and less than or equal to Greater than 60 and less than or equal to Greater than 70 and less than or equal to Greater than 80 and less than or equal to Greater than 90 and less than or equal to Geographic distribution (by state) New South Wales 37.8 Australian Capital Territory 2.8 Victoria 30.5 Queensland 14.8 Western Australia 3.3 South Australia 8.8 Tasmania 1.4 Northern Territory 0.6 Geographic distribution (metro/nonmetro) Inner city 1.9 Metropolitan 78.4 Nonmetropolitan 19.7 Occupancy Owner-occupier 76.7 Investment 23.3 Residency Australian resident Nonresident 0.00 Seasoning Less than or equal to six months 13.7 Six months one year years years years years 3.0 Greater than five years 12.2 Principal amortization Fully amortizing 79.9 Interest-only for up to 10 years, reverting to fully amortizing 20.1 Employment status P-A-Y-E (full or part time) 84.6 Self-employed MAY 29,

16 Table 5 Loan Pool Characteristics (cont.) Current loan size distribution (A$) Value of loans (%) Loan documentation Income, savings fully verified Mortgage insurers QBE 5.07 Genworth 5.35 Uninsured Cash-Flow Analysis Our cash-flow analysis shows that the transaction has sufficient income to support timely payment of interest and ultimate repayment of principal to the rated notes under various stress scenarios commensurate with the preliminary ratings assigned. Liquidity assessment If there are insufficient interest collections, then the primary liquidity support to meet senior expenses and interest on the class A and class B notes is provided through the ability to draw on principal. An amortizing liquidity facility will be available if interest collections plus principal draw is insufficient. The facility is equal to 1.9% of the initial collateral pool balance and amortizes to a floor that is the greater of A$1,425,000 or 1.9% of the aggregate balance of performing mortgage loans. The facility agreement includes downgrade language that requires the replacement of the facility provider or cash collateralization of the undrawn limit, or such other remedy consistent with our counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013) should the rating on NAB fall below the required rating. Extraordinary expense reserve On the closing date of the transaction, NAB will deposit an amount of A$150,000, to be held to cover extraordinary expenses that might arise. The sizing of this reserve is consistent with the preliminary ratings and will be maintained and topped up to A$150,000, when possible, through the life of the transaction. Interest-rate risk Some 9.1% of the portfolio represents loans with an interest rate that is fixed for up to five years. After the transaction closes, variable-rate loans can be converted to up to 10 years fixed rate, provided the proportion of fixed-rate loans does not exceed 25% of the pool balance. The issuer will enter into a fixed-rate swap with NAB to hedge the interest-rate risk between the fixed-rate mortgage loans and the floating-rate obligations of the trust. The swap agreement includes downgrade language that requires the posting of collateral or the replacement of the swap counterparty or other remedy consistent with our counterparty criteria--see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, should NAB's rating fall below the required rating. The variable-rate loans are hedged under a basis swap provided by NAB that provides a hedge to the basis risk associated with all variable-rate mortgage loans and the floating-rate coupon on the notes. The threshold-rate MAY 29,

17 mechanism will be utilized if the basis swap terminates or there is insufficient income from the basis for the issuer to meet its obligations. S&P Global Ratings is satisfied that the income received under the fixed interest-rate swaps and the use of the threshold-rate mechanism will ensure that there is sufficient yield for the trust to meet its obligations should the basis swap fall away. Cash-flow modeling assumptions The key rating stresses and assumptions modelled at each rating level are: Analyzing and modeling the structure of the transaction to include all note balances and margins, trust expenses, liquidity facility, waterfall priority for income and principal payments, and the loss mechanism, as described in the transaction documents. Default frequency and loss severity assumed at different rating levels. Timing of defaults (table 6). Foreclosure period and time to recover sale proceeds from defaulted loans. We have assumed a recovery period of 15 months. Prepayment rates, to test potential yield shortfalls we have assumed low prepayment rates and to stress the excess spread available we have run high prepayment-rate scenarios (table 7). Modeling the cash flows of the assets based on the characteristics of the underlying collateral pool, and the margin set on all loans. Interest rates, by varying the bank-bill swap rate curves at each rating level. Arrears levels and cure periods. Replacement servicer fee of 0.35%, should it be necessary for NAB to be replaced as servicer. Sequential and pro-rata principal payment structures of the notes. Table 6 Assumed Default Curves Month Front-end default curve (%) Back-end default curve (%) Base-case default curve (%) Table 7 Assumed Constant Prepayment Rates (CPR)* Transaction seasoning Low CPR scenario (% per year) Constant CPR scenario (% per year) High CPR (% per year) Up to month Month 13 to month Month 19 to month After month *Total CPR shown is inclusive of voluntary and involuntary (defaults) prepayments. MAY 29,

18 Commingling And Servicer Risk The collection account for this transaction will be opened in the name of the issuer. The transaction documents require the collection account to be held with a bank that has either a minimum long-term rating of 'A' and a short-term rating of 'A-1', or a minimum long-term rating of 'A+' if it has no short-term rating. The transaction documents include downgrade language consistent with our "Counterparty Risk Framework Methodology And Assumptions" criteria, published on June 25, 2013, that requires the replacement of the collection account provider to the trust should its rating fall below the applicable rating. NAB meets our "Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment" servicer risk criteria, published on May 28, The transaction documents require the servicer to remit collections within one business day of receipt unless it has either a minimum long-term rating of 'BBB' and a short-term rating of 'A-2' or a minimum long-term rating of 'BBB+' if it has no short-term rating. The distribution of scheduled monthly collections for the collateral pool includes a concentration on one day of the month. As such, if the servicer's rating falls below the minimum level, then the servicer is required to assess the distribution of scheduled monthly collections at that time and, if there are significant concentrations, implement additional measures to address this. Legal And Counterparty Risks In our view, the issuer has features consistent with our criteria on special-purpose entities, including the restriction on objects and powers, debt limitations, independence, and separateness. Analytical Contacts Primary analyst: Elizabeth Steenson, director, Melbourne, (61) RMBS analytical manager: Luke Elder, director, Melbourne (61) Surveillance analyst: Justin Rockman, associate director, Melbourne (61) Related Criteria And Research Related Criteria Methodology For Assessing Mortgage Insurance And Similar Guarantees And Supports In Structured And Public Sector Finance And Covered Bonds, Dec. 7, 2014 Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014 Australian And New Zealand Asset Isolation And Special-Purpose Entity Criteria--Structured Finance, Aug. 21, 2013 Australian RMBS Postcode Classification Assumptions, July 10, 2013 Counterparty Risk Framework Methodology And Assumptions, June 25, MAY 29,

19 Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Australian RMBS Rating Methodology And Assumptions, Sept. 1, 2011 Methodology And Assumptions For Analyzing The Cash Flow And Payment Structures Of Australian and New Zealand RMBS, June 2, 2010 Understanding Standard & Poor's Rating Definitions, June 3, 2009 Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Related Research 2016 Outlook Assumptions For The Australian Residential Mortgage Market, Jan. 11, 2016 An Overview Of Australia's Housing Market And Residential Mortgage-Backed Securities, March 3, 2015 Industry Economic And Ratings Outlook: Australian RMBS Fundamentals Reflect A Stable Economic Environment, Sept. 30, 2014 Australia And New Zealand Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, Aug. 1, 2014 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 RMBS Performance Watch: Australia, published quarterly RMBS Arrears Statistics: Australia, published monthly Australian Securitization News, published monthly The issuer has informed S&P Global Ratings that the issuer will be publically disclosing all relevant information about the structured finance instruments that are subject to this rating report. Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services licence number under the Corporations Act Standard & Poor's credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act). MAY 29,

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