Fitch Ratings has affirmed the ratings of two note classes from two SMHL Series transactions, which consist of notes backed by pools of first-ranking Australian residential full-documentation mortgage loans.
All mortgages were originated by
RATING ACTIONSENTITY/DEBT RATING PRIOR
SMHL Series 2018-1 Fund
A AU3FN0044798
LT AAAsf Affirmed AAAsf
A AU3FN0056990
LT AAAsf Affirmed AAAsf
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Resilient Asset Performance: Fitch has removed the additional coronavirus pandemic RMBS stress scenario analysis that was implemented on
At the
See the following links for Fitch's pandemic-related credit views and analytical approach:
'Global Economic Outlook -
'Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update', published on
'Global SF Rating Assumptions Updated to Reflect Coronavirus Risk', published on
Analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the following commentary:
'Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS', published on
'Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects', published on
'Fitch Ratings 2021 Outlook: Australia and New Zealand Structured Finance', published on
'Fitch Ratings Removes Additional Coronavirus Stress From Australia, NZ RMBS Criteria', published on
Limited Liquidity Risk: Cash flow analysis has not been performed for either transaction, in accordance with Fitch's criteria. SMHL 2018-1 pays down sequentially for life, while SMHL 2020-1 is paying down sequentially to build up credit enhancement and will start pro-rata paydown if subordination conditions are satisfied. SMHL 2018-1 benefits from a liquidity facility sized at no less than 1.6% of the outstanding note balance, while SMHL 2020-1 has a liquidity facility sized at 1.0%.
Low Operational Risk:
Economic Rebound to Support Stable Outlook: Fitch expects near-term mortgage performance to deteriorate, but to continue to support the Stable Outlook on the notes. We forecast
The key rating drivers listed in the applicable sector criteria, but not mentioned above, are not material to this rating action.
RATING SENSITIVITIES
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case and are likely to result in a decline in credit enhancement and remaining loss-coverage levels available to the notes. Decreased credit enhancement may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions.
This section provides insight into the model-implied sensitivities the transaction faces when assumptions - weighted-average foreclosure frequency or weighted-average recovery rates - are modified, while holding others equal. The modelling process uses the modification of default and loss assumptions to reflect asset performance in up and down environments. The results below should only be considered as one potential outcome, as the transactions are exposed to multiple dynamic risk factors. Fitch modifies the pre-lenders' mortgage insurance recovery rate to isolate the effect of a change in recovery proceeds at the borrower level.
Fitch's previous rating sensitivities for these two transactions were discussed in the following rating action commentary:
Fitch Assigns Final Ratings to SMHL Series 2018-1 Fund at www.fitchratings.com/site/pr/10045013
Fitch Assigns Final Ratings to
Coronavirus Downside Scenario Sensitivity
Under Fitch's downside scenario, re-emergence of infections in major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets.
The class A notes from both transactions are not sensitive to downgrade in this scenario.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information as part of its ongoing monitoring. Prior to SMHL 2018-1 and SMHL 2020-1 closing, Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was available.
As part of its ongoing monitoring, Fitch reviewed a small targeted sample of
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
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