Fitch Ratings has assigned expected ratings to Series 2024-1 WST Trust's mortgage-backed pass-through floating-rate bonds.

The issuance consists of notes backed by a pool of first-ranking prime Australian residential full-documentation mortgage loans originated by Westpac Banking Corporation (A+/Stable/F1). The notes will be issued by BNY Trust Company of Australia Limited in its capacity as trustee of Series 2024-1 WST Trust, a separate and distinct trust created under a master trust deed.

RATING ACTIONS

Entity / Debt

Rating

Series 2024-1 WST Trust

A

LT

AAA(EXP)sf

Expected Rating

B

LT

NR(EXP)sf

Expected Rating

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The collateral pool totalled AUD750.0 million and consisted of 1,857 obligors with a weighted-average (WA) current loan/value ratio (LVR) of 61.0% and a WA indexed current LVR of 59.3% at the 30 November 2023 cut-off date.

KEY RATING DRIVERS

Credit Enhancement Buffers Expected 'AAAsf' Losses: The 'AAAsf' weighted-average foreclosure frequency (WAFF) of 10.3% is driven by the WA unindexed current LVR of 61.0%, interest-only loans forming 8.2% of the pool and, under Fitch's methodology, investment loans of 30.7% of the pool. The 'AAAsf' WA recovery rate (WARR) of 61.2% is driven by the WA indexed scheduled LVR of 61.8%.

The 'AAAsf' portfolio loss is 4.00%, compared with class A credit enhancement of 8.00% provided by subordination of the class B notes. The transaction pays principal sequentially until the serial paydown conditions are met, at which time it will pay pro rata between the two note classes. Principal payments will revert to sequential pay if any of these conditions are breached or the transaction reaches the call option date or the date-based call option date.

Limited Liquidity Risk: Payment interruption risk is mitigated by a liquidity reserve initially sized at 0.85% of the note balance, with a floor of AUD637,500, which will amortise annually in line with the outstanding pool balance. Timely payment of interest and ultimate payment of principal were made to the A notes in all 'AAAsf' rating scenarios.

Low Operational and Servicing Risk: Westpac Banking Corporation has extensive experience in originating, servicing and managing its mortgage portfolio, mitigating transaction operational risks. Fitch undertook an operational review and found that the operations of the originator and servicer were comparable with those of other major Australian banks.

Tight Labour Market Supports Outlook: Portfolio performance is supported by Australia's continued economic growth and tight labour market, despite interest rates rising from May 2022 to November 2023. GDP growth in the year to September 2023 was 2.1% and unemployment was 3.9% in November 2023. Fitch expects GDP to slow to 1.5% in 2024, with unemployment rising to 4.2%. This reflects Fitch's expectation of the impact of China's property downturn in 2024 and lagged effects of tighter monetary policy on consumption.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Transaction performance may be affected by changes in market conditions and the economic environment. Weakening asset performance is strongly correlated with increasing delinquencies and defaults, which could reduce credit enhancement available to the notes.

Downgrade 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.

The rating sensitivity section provides insight into the model-implied sensitivities the transaction faces when assumptions - WAFF or WARR - 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 should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors.

Note class: A

Expected rating: AAAsf

Increase defaults by 15%: AAAsf

Increase defaults by 30%: AAAsf

Reduce recoveries by 15%: AAAsf

Reduce recoveries by 30%: AAAsf

Increase defaults by 15% and reduce recoveries by 15%: AAAsf

Increase defaults by 30% and reduce recoveries by 30%: AAAsf

The transaction structure supports an LMI-independent rating for the class A notes.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The rated notes are at the highest level on Fitch's scale and cannot be upgraded. As such, upgrade sensitivities are not relevant.

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 sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available to Fitch for this transaction. As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, and together with any assumptions referred to above, Fitch's assessment of the 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.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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