RedZed Trust in respect of Series

Transcription

1 Presale: RedZed Trust in respect of Series Primary Credit Analyst: Calvin C Leong, Melbourne (61) ; calvin.leong@standardandpoors.com Secondary Contact: Luke Elder, Melbourne (61) ; luke.elder@standardandpoors.com Table Of Contents Profile Rationale Strengths and Weaknesses Transaction Structure Legal And Counterparty Risks Note Terms And Conditions Liquidity Support Extraordinary Expense Reserve Pro-rata Paydown Cash Flow Analysis Rating Transition Analysis Origination And Servicing MAY 5,

2 Table Of Contents (cont.) Collateral Rating Multiples Loan Pool Profile Standard & Poor's 17g-7 Disclosure Report Analytical Contacts Related Criteria And Research MAY 5,

3 Presale: RedZed Trust in respect of Series This presale report is based on information as of May 6, 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 6, 2014 Class Preliminary Rating* Amount (mil. A$) Minimum credit support (%) Credit support provided by subordination (%) A-1 AAA (sf) A-2 AAA (sf) A-3 AAA (sf) B AA (sf) C A (sf) D BBB (sf) E BB (sf) F B (sf) G N.R N/A N/A *N.R. Not rated. N/A Not applicable. Profile Expected closing date: May 2014 Final maturity date: May 2055 Collateral: Fully amortizing and interest only, reverting to fully amortizing Australian-dollar loans to nonconforming and subprime borrowers, maturing no later than 18 months before the final maturity date, and secured by first-registered mortgages over Australian residential properties. Structure type: Subprime residential mortgage-backed pass-through securities Issuer: Perpetual Trustee Co. Ltd. as trustee of the RedZed Trust in respect of Series Primary credit enhancement: For the class A-1 notes, the subordination of the class A-2, class A-3, class B, class C, class D, class E, class F, and class G notes. For the class A-2 notes, the subordination of the class A-3, class B, class C, class D, class E, class F, and class G notes. For the class A-3 notes, the subordination of the class B, class C, class D, class E, class F, and class G notes. For the class B notes, the subordination of the class C, class D, class E, class F, and class G notes. For the class C notes, the subordination of the class D, class E, class F, and class G notes. For the class D notes, the subordination of the class E, class F, and class G notes. For the class E notes, the subordination of the class F and class G notes. For the class F notes, the subordination of the class G notes. Prior to distribution to the MAY 5,

4 beneficiary, excess spread, if any, will firstly be available to offset losses, then subject to meeting certain conditions, to be available to build a yield enhancement reserve, then to be available to reverse turbo the principal payment to the notes (retention mechanism), then to be available to turbo the principal waterfall (amortization mechanism). These are discussed in more detail under "Note Terms And Conditions" below. Supporting ratings Liquidity facility provider: Commonwealth Bank of Australia (CBA) Rationale The preliminary ratings assigned to the notes to be issued by Perpetual Trustee Co. Ltd. as trustee of the RedZed Trust in respect of Series reflect the following factors. The credit risk of the underlying collateral portfolio (discussed in more detail under "Collateral") and the credit support provided to each class of rated notes are commensurate with the ratings assigned. Credit support is provided by subordination and excess spread. The assessment of credit risk takes into account the underwriting standards and servicing quality of RedZed Lending Solutions Pty Ltd. (RedZed) (discussed in more detail under "Origination And Servicing"), which are consistent with industry-wide practices. The assets can meet timely payment of interest and ultimate payment of principal to the rated classes of notes under the appropriate rating stresses. Key factors are the level of subordination provided; the condition that a minimum margin will be maintained on the assets; the principal draw function; the provision of a liquidity facility by CBA; the trapping of excess spread in the yield enhancement reserve that is available to meet the class A-1, class A-2, class A-3, and class B notes' interest payments; the retention mechanism through which available excess spread is diverted to reverse turbo the principal payment to the notes; the amortization mechanism through which available excess spread is diverted to turbo the principal waterfall (the conditions for these excess spread trapping or diversion mechanisms are discussed in more detail under "Note Terms And Conditions"); and the provision of an extraordinary expense reserve, funded by RedZed at closing to cover extraordinary expenses. All rating stresses are made on the basis that the trust does not call the notes at or beyond the call-option date, and that all rated classes of notes must be fully redeemed via the principal waterfall mechanism under the transaction documents. We also have factored into our ratings the legal structure of the trust, which is established as a special purpose entity and meets our criteria for insolvency remoteness. Strengths and Weaknesses Strengths The strengths of the transaction we observed in the rating analysis are: For the class A-1 and class A-2 notes, the respective 50.0% and 35.0% credit support provided by the subordinated classes of notes exceeds Standard & Poor's minimum credit support at the 'AAA (sf)' rating level. The ability of the transaction to utilize the yield enhancement reserve, built from available excess spread, to meet any interest shortfalls on the class A-1, class A-2, class A-3, and class B notes. This supports the timely payment of MAY 5,

5 interest to these classes of notes. The ability of the transaction to divert available excess spread, if certain conditions are met, to reverse turbo the principal payment to the notes (retention mechanism), and or to turbo the principal waterfall (amortization mechanism). The diversion of available excess spread to repay principal of the notes and/or to meet principal waterfall payments effectively creates overcollateralization, which is available to offset losses on the mortgage portfolio. Furthermore, all else remaining constant, the use of excess spread to repay the notes improves the yield available in the transaction by reducing the weighted average margin of the notes issued over the life of the transaction. This is a closed pool, with no prefunding or substitutions allowed. Consequently, the way the credit characteristics of the pool can change should be restricted to natural attrition. Weaknesses The main weaknesses identified regarding the transaction are: By current balance, 28.3% of the loans in the portfolio are to borrowers with unfavorable credit histories. Market experience has shown that such borrowers are more likely to default, compared with the general population. In addition, 2.8% of the pool is currently in arrears by at least one payment. Standard & Poor's assumes a higher default frequency for loans to borrowers with unfavorable credit histories and that are in arrears. Approximately 73.1% of the portfolio consists of loans where the loan is made for the purpose of refinancing existing debt. Where the refinancing involves debt consolidation or cash or equity take-out, Standard & Poor's has increased the default frequency on these loans to reflect the situation where a borrowing is against the build-up of equity in a property because we believe this increases the likelihood of default by the borrower. Self-employed borrowers account for 90.0% of the loans in the portfolio. Standard & Poor's expects self-employed borrowers to experience higher cash-flow variability and, thus, higher loan arrears, making them more susceptible to defaults should there be a downturn in the Australian economy. Standard & Poor's assumes higher default frequencies for these loans. By current balance, 47.1% of the loans in the portfolio are loans with interest-only periods of up to five years. The loans convert to fully amortizing after five years. Although this somewhat mitigates refinancing risk, the interest-only feature can create a payment shock when the payments revert to fully amortizing over the remaining term of the loan. Standard & Poor's has accounted for this by assuming a higher default probability for these loans. There are step-down provisions for principal pass-through to the class B, class C, class D, class E, and class F notes under certain circumstances (refer to "Pro-rata Paydown"). Transaction Structure Chart 1 illustrates the transaction structure. MAY 5,

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. Legal And Counterparty Risks In our view, the issuer has features consistent with Standard & Poor's criteria on special-purpose entities, including the restriction on objects and powers, debt limitations, independence, and separateness. The transaction will have counterparty exposure to CBA as liquidity facility provider and as bank account provider. The documentation of these roles requires replacement and posting of collateral if the ratings on these entities fall below certain levels; these mechanisms are consistent with Standard & Poor's counterparty rating criteria. MAY 5,

7 Note Terms And Conditions The class A-1, class A-2, class A-3, class B, class C, class D, class E, class F, and class G notes have a legal final maturity of the payment date in May They are all floating-rate, pass-through notes. The class G notes are unrated. Interest payments Each class of notes as listed above ranks senior to that of the class of notes below it for the payment of interest. Interest on each class of notes will be calculated based on their invested amounts, unless the stated amount of that class of notes is zero, when no interest will accrue. Interest payment to the unrated class G notes ranks subordinate to the reimbursement of charge offs to all notes and ranks after the mechanisms for trapping and diversion of excess spread (discussed below). Principal allocation Under the principal waterfall, principal collections--after application of principal draws, if necessary, to cover any income shortfalls on required payments; and or to fund redraws--will be passed through to each class of notes on a sequential-payment basis. The exception is the payment of principal to the class A-1, class A-2, and class A-3 notes, which rank pari passu. The transaction can convert to a pro-rata payment basis, in which principal would be passed through to each rated class of notes, only if the principal step-down tests are met (see "Pro-rata Paydown"). In both the sequential and pro-rata payment structures, principal payments to the unrated class G notes will occur only after the principal of all rated class of notes are fully repaid. Under the retention mechanism, principal payments to the most subordinated rated class of notes outstanding can be made by applying available excess spread (see "Retention mechanism"). Furthermore, under the amortization mechanism, if an amortization event is subsisting, principal collections will be supplemented with available excess spread to meet the principal waterfall payments (see "Amortization mechanism"). The manager may elect to call the notes in full on or after the payment date on which the outstanding invested amount of all notes is less than 25% of the initial invested amount of all notes, or on or after the payment date occurring in May There will be no change in the margin payable to each class of notes if the notes are not called on the call-option 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 the noteholders. Yield enhancement reserve From the closing date until the first call-option date; and as long as the class A-1, class A-2, class A-3, or class B notes remain outstanding, an amount equal to 0.30% per annum of the outstanding mortgage balance as of the immediately preceding collection period for each payment date, will be trapped from available excess spread into the yield enhancement reserve, to build the reserve up to the required amount of A$500,000. If the yield enhancement reserve is utilized and the amount in it falls below the required amount, it will be topped up from available excess spread to the required amount. MAY 5,

8 The yield enhancement reserve, in addition to the principal draw function and draws on the liquidity facility, will be available to meet any interest shortfalls on the class A-1, class A-2, class A-3, and class B notes. Retention mechanism From the closing date until the first call-option date; and as long as any rated notes remain outstanding, an amount equal to the retention amount will be diverted from available excess spread to reverse turbo principal payments to the notes. The retention amount is as follows, expressed as a percentage of the outstanding mortgage balance as of the immediately preceding collection period for each payment date: From the first payment date to the twelfth (inclusive) payment date: 0.50% per annum; and From the thirteenth payment date to the twenty-forth (inclusive) payment date: 0.45% per annum; and From the twenty-fifth payment date to the first call-option date (inclusive): 0.40% per annum. This retention amount will be used to pay the principal outstanding of each class of notes until fully repaid, starting with the class F, then class E, then class D, then class C, then class B, then class A-3, then class A-2, then class A-1, and then class G notes. By using available excess spread as principal payment on the notes, the ratio of assets versus liabilities increases, creating overcollateralization for the transaction. This overcollateralization is recorded in a retention ledger, which is available to offset losses before allocation to the notes. Amortization mechanism If an amortization event is subsisting, available excess spread after deducting for the company tax rate (amortization amount), will be diverted to turbo the principal waterfall. An amortization event is subsisting on a payment date if: That payment date is on or after the second payment date following the first call-option date; or A servicer termination event is subsisting and has been subsisting for more than 10 business days. A servicer termination event includes, but not limited to, when the servicer fails to remit collections as required under the transaction documents, or when the servicer becomes insolvent. This amortization amount will be used to supplement principal collections, and will form part of the amount available to meet payments under the principal waterfall as described under "Principal allocation". By using available excess spread to meet principal payments, the ratio of assets versus liabilities increases, creating overcollateralization for the transaction. This overcollateralization is recorded in an amortization ledger, which is available to offset losses before allocation to the notes. Loss allocation Any losses on the loan portfolio are firstly allocated to the retention ledger until its balance is zero, then to the amortization ledger until its balance is zero. Any remaining losses are then to be allocated to class G notes until their outstanding amount is reduced to zero, followed by the class F, class E, class D, class C, class B, class A-3, class A-2, and then to the class A-1 notes. If losses can be reinstated throughout the life of the transaction, the reinstatement will occur to each class of notes in the reverse order. MAY 5,

9 Liquidity Support Primary liquidity support to meet senior fees, expenses, and interest on all classes of notes, excluding the class G notes, is provided through the ability to draw on principal. If available income plus principal draw is insufficient, an asset liquidity facility will be available. However, if the stated amount of any class of rated notes, other than the class A-1, class A-2, and class A-3 notes, is less than 95% of its invested amount on a payment date, that class of rated notes cannot utilize principal draw or the liquidity facility. In addition, the class A-1, class A-2, class A-3, and class B notes can draw on the yield enhancement reserve if the draws on principal and liquidity facility are insufficient to meet their timely interest payments. In all cases, the class A-1, class A-2, and class A-3 notes are at no time restricted from the use of any liquidity support. The asset liquidity facility provided by CBA represents 2.5% of the aggregate invested amount of the notes outstanding, subject to a floor of A$950,000. The unrated class G notes are excluded from required payments under the income waterfall, and hence any liquidity support. Extraordinary Expense Reserve On the closing date of the transaction, RedZed will deposit an amount of A$150,000, to be held to cover any extraordinary expenses that may arise. This reserve will be maintained and topped up to A$150,000, where possible, through the life of the transaction. Pro-rata Paydown Provided certain performance triggers are met, principal repayments will occur on a pro-rata basis to all classes of notes, except for the unrated class G notes. When the transaction pays on a pro-rata basis, the class G portion of principal collections is allocated to the most subordinated rated class of notes outstanding at that time. Therefore, the class G notes will only receive principal payments after all rated class of notes has been fully repaid. The triggers to allow pro-rata paydown are: The payment date falls on or after the second anniversary of the transaction's closing date. The subordination percentage for the class A-1, class A-2, and class A-3 notes is at least double that provided on the settlement date. The cumulative amount of losses experienced on mortgage loans portfolio expressed as a percentage of the initial mortgage loan portfolio is less than: % between two and three years after the closing date of the transaction, % between three and four years after the closing date of the transaction, and % greater than four years following the closing date of the transaction. MAY 5,

10 The percentage of the mortgage loans portfolio in arrears greater than 90 days is less than: -- 8% between two and three years after the closing date of the transaction, % between three and four years after the closing date of the transaction, and % greater than four years following the closing date of the transaction. The aggregate invested amount of the rated notes is more than 10% of the aggregate invested amount of the rated notes on the closing date. There are no carry-over charge offs to any notes. Cash Flow Analysis Our cash-flow analysis allows us to test the capacity of the transaction's cash flow to support the rated classes of notes under various stress scenarios and repay principal on the rated notes by their legal final maturity date. The analysis also enables us to determine whether the liquidity support, which includes a liquidity facility provided by CBA, the use of principal draws, and the yield enhancement reserve, is sufficient. Key rating stresses and assumptions modeled at each rating level include: Analyzing and modeling the structure of the transaction to include all note balances and margins, trust expenses, liquidity mechanisms within the structure, the priority of payments for income and principal, and excess spread and loss mechanisms, as described in the transaction documents. Default frequency and loss severity assumed at each rating level. Timing of defaults. Standard & Poor's assumes most defaults would likely occur within the first few years of the transaction. We have run three default curve assumptions (table 1): a front-loaded default curve, whereby most of the expected losses occur earlier in the first few years of the transaction's life; a base-case default curve; and a back-loaded default curve, whereby losses occur later within the first five years of the transaction's life. Time to recovery of sale proceeds from defaulted loans. A key driver in the cash-flow model is the time it takes to foreclose and recover monies from the defaulted borrower. We have assumed a recovery period of 15 months. Prepayment rates. Standard & Poor's has considered various prepayment rates when modeling the cash flows of the underlying mortgage loans to assess the impact on the ability of the trust to meet its obligations. Standard & Poor's has modeled a low, medium, and high prepayment rate (table 2). Modeling the cash flows of the assets based on the characteristics of the underlying collateral pool--interest-only periods, for example--and the margin set on all loans, which is prescribed at a minimum rate of 4.70% in the transaction documents. There are no fixed-rate loans in the portfolio and, as per the transaction documents, any loan that converts to fixed rate will be removed from the portfolio. Interest rates, by varying the bank bill swap rate (BBSW) interest-rate curves at each rating level. The inclusion of an extraordinary expense reserve of A$150,000, fully funded by RedZed on closing, further providing a buffer during potential periods of stress and to account for any unforeseen expenses that may arise and that must be paid senior in the priority of payments. The sequential and pro-rata principal payment structure of the notes. MAY 5,

11 Table 1 Assumed Default Curves Month Front-ended default curve (%) Back-ended default curve (%) Base-case default curve (%) Table 2 Assumed Constant Prepayment Rates (CPR)* Transaction seasoning High CPR (%) Low CPR (%) Constant (%) 1-12 months months months months *Total CPR shown is inclusive of voluntary and involuntary (defaults) prepayments. Rating Transition Analysis Scenario analysis: Property market value decline Standard & Poor's carried out a scenario analysis to determine the impact on the ratings if property values were to decline 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 3. Table 3 shows the credit support and implied credit assessment (credit only) if this scenario were to occur and all else remained constant. The implied ratings are taking credit into consideration only, and do not consider any yield or liquidity issues that may be relevant at the time. Table 3 Credit Support And Implied Credit Assessments Under The Scenario Class Credit support Implied credit assessment A aaa A aa+ A a+ B 27.8 a- C 18.8 bbb- D 11.4 bb- E 6.6 b F 3.1 N.A. N.A.--Not available. The level of credit support to class F notes means the credit assessment under this stress scenario is at a level that is vulnerable to nonpayment under our rating scenario. MAY 5,

12 Origination And Servicing RedZed was founded in 2006, and began operating in The company is privately owned and has assets of approximately A$320 million as at June It is a lender of nonconforming loans originated through its network of brokers, and provides home loans to consumers who fall outside the lending criteria of traditional bank and nonbank lenders. In particular, RedZed specializes in residential mortgage loans to borrowers who are self-employed or who self-certify their income, borrowers who have had prior episodes of credit impairment, and other borrowers who may not meet the requirements of traditional lenders. These features, and the absence of lenders' mortgage insurance (LMI) on RedZed's mortgage loans, stress the critical role of RedZed's credit underwriting and security valuation standards as well as its loan servicing and collections management platforms and processes. Although all mortgage loans are written in the name of Perpetual as trustee of the relevant trust, RedZed maintains all client contact, and controls all aspects of the underwriting and credit assessment of loan applicant. While Perpetual is responsible for all documentation, settlement, and discharges, RedZed manages the arrears and collections process. RedZed requires full property valuations for all loans. This is RedZed's second RMBS issuance; its first issuance was in 2011 totaling A$80 million. Chart 2 shows the arrears performance of RedZed securitized loans against the Australian subprime Standard & Poor's Mortgage Performance Index (SPIN), while chart 3 shows the prepayment rate of RedZed securitized loans against the weighted-average prepayment rate for all Australian rated subprime RMBS transactions, as represented by the Australian subprime Standard & Poor's Prepayment Index (SPPI). RedZed manages and reports arrears on a scheduled balance basis. Under the scheduled balance, a mortgage loan is only deemed delinquent when the actual loan balance exceeds the scheduled balance. MAY 5,

13 Chart 2 MAY 5,

14 Chart 3 Collateral The credit assessment of the loan portfolio is based on an analysis of the characteristics of each loan in the pool, by current balance. In addition to the key collateral characteristics highlighted earlier under "Strengths and Weaknesses", some of the other characteristics considered are highlighted below. Borrowers can redraw prepaid principal under mortgage loans, but further advances are not permitted. Standard & Poor's has increased the credit support level for this transaction, to reflect borrowers' ability to access redraws on their loan facilities. The pool has 17.0% exposure by current balance to loans secured by properties in nonmetropolitan areas. Standard & Poor's has increased the default frequency and assumed a longer realization period for loans secured by nonmetropolitan properties. This reflects the weaker employment trends and longer selling period that tend to occur in nonmetropolitan areas. The weighted-average current loan-to-value (LTV) ratio of the pool is 71.6%, with 40.5% of loans with current LTV ratios of less than or equal to 75%. Standard & Poor's believes that a loan is less likely to default when the LTV ratio is MAY 5,

15 lower than 75% because such borrowers have more equity in the mortgaged property. The portfolio has a weighted-average seasoning of 22.8 months, with approximately 5.8% of the loans seasoned by more than five years. We believe a loan is less likely to default five years after origination because we have observed that the majority of losses are realized within the first five years. The portfolio contains 40.5% of loans with a current LTV ratio of less than or equal to 75%, which contributed to the weighted-average current LTV ratio of 71.6%. We have taken into account these factors in our credit analysis of the portfolio. A summary of the default frequency and loss severity of the total portfolio of loans is shown in table 4. Table 4 Summary Credit Assessment Expected default frequency (%) AAA AA A BBB BB B Loss severity (%) Minimum credit support (%) Assumptions Market value decline (%) Weighted avg. recovery period (mos.) Interest rate through recovery period (%) Rating Multiples Standard & Poor's compares the characteristics of each loan with its benchmark pool and applies rating multiples to the benchmark default frequency, where required, to determine the default frequency of a loan. Together with the loss severity, this determines the minimum credit support level for the ratings on the notes. Table 5 lists the main characteristics that deviated from the benchmark. These factors are the main drivers in determining the minimum credit support for a 'AAA (sf)' rating in this transaction. Table 5 Rating Multiples Criteria Multiple for default frequency against total pool (x) Credit history Loan purpose Employment status Seasoning Loan term MAY 5,

16 Loan Pool Profile Tables 6 and 7 contain summaries of the characteristics of the loan pool as of March 31, Table 6 Summary of Mortgage Portfolio Profile Total number of consolidated loans and borrowers 419 Total current balance of loans (A$) 149,983,572 Maximum current loan size (A$) 1,460,103 Average loan size (A$) 357,956 Maximum LTV ratio (%) 86.8 Weighted-average current LTV ratio (%) 71.6 Weighted-average loan seasoning (months) 22.8 Weighted-average term to maturity (years) 27.5 Table 7 Mortgage Portfolio Characteristics Current loan size distribution (A$) 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, Greater than 1,500, Current loan-to-value ratio distribution (%) Less than or equal to 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 Greater than Geographic distribution (by state) New South Wales 15.7 Australian Capital Territory 2.6 Victoria 52.3 Queensland 14.0 Western Australia 4.9 South Australia 7.0 Tasmania MAY 5,

17 Table 7 Mortgage Portfolio Characteristics (cont.) Northern Territory 0.6 Geographic distribution Inner-city 1.5 Metropolitan 81.5 Nonmetropolitan 17.0 Seasoning Less than or equal to six months 22.2 Greater than six months and less than or equal to one year 16.3 Greater than one year and less than or equal to two years 25.4 Greater than two years and less than or equal to three years 12.7 Greater than three years and less than or equal to five years 17.6 Greater than five years 5.8 Principal amortization Fully amortizing 52.9 Interest only for up to five years, reverting to fully amortizing 47.1 Borrower employment status Pay-as-you-go borrowers (full or part time) 9.6 Pay-as-you-go borrowers (casual) 0.4 Self-employed borrowers 90.0 Interest type Variable-rate loans Fixed-rate loans 0.0 Documentation Full documentation 11.7 Low documentation 88.3 Prior credit impairment No adverse history 71.7 One event of default or judgment 18.3 Two or more events of default or judgment 10.0 Loan purpose Purchase 26.9 Refinance 73.1 Current delinquency Less than or equal to 30 days in arrears 97.2 Greater than 30 days and less than or equal to 60 days in arrears 2.1 Greater than 60 days and less than or equal to 90 days in arrears 0.7 Greater than 90 days in arrears MAY 5,

18 Standard & Poor's 17g-7 Disclosure Report SEC Rule 17g-7 requires an NRSRO, for any report accompanying a credit rating relating to an asset-backed security as defined in the Rule, to include a description of the representations, warranties and enforcement mechanisms available to investors and a description of how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities. The Standard & Poor's 17g-7 Disclosure Report included in this credit rating report is available at Analytical Contacts Primary analyst: Calvin Leong, associate director, Melbourne, (61) RMBS analytical manager: Luke Elder, director, Melbourne (61) Surveillance manager: Narelle Coneybeare, director, Melbourne, (61) Related Criteria And Research Related Criteria Criteria: Outlook Assumptions For The Australian Residential Mortgage Market, Feb. 10, 2014 Australian And New Zealand Asset Isolation And Special-Purpose Entity Criteria, Aug. 21, 2013 Criteria: Assumptions: Australian RMBS Postcode Classification Assumptions, July 10, 2013 Criteria: Counterparty Risk Framework Methodology And Assumptions, June 25, 2013 Criteria: Australian RMBS Rating Methodology And Assumptions, Sept. 1, 2011 Criteria: Methodology And Assumptions For Analyzing The Cash Flow And Payment Structures Of Australian and New Zealand RMBS, June 2, 2010 Criteria: Australia And New Zealand RMBS: Analyzing Credit Quality, Feb. 21, 2007 Related Research An Overview Of Australia's Housing Market And Residential Mortgage-Backed Securities, Jan. 15, 2014 Rating Australian RMBS That Include Loans to Self-Managed Super Funds, Sept. 6, 2012 Australia And New Zealand Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors On Ratings, March 29, 2012 Lenders' Mortgage Insurance: A Form Of Credit Enhancement To Australian RMBS, Jan. 26, 2005 RMBS Performance Watch: Australia, published quarterly RMBS Arrears Statistics: Australia, published monthly Australian Securitization News, published weekly 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 5,

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