Rating Action: Moody's assigns provisional ratings to Bluestone Group's second RMBS transaction for 2020
Global Credit Research - 28 Aug 2020
AUD306.25 million of debt securities rated
Sydney, August 28, 2020 -- Moody's Investors Service ("Moody's") has assigned the following provisional ratings to the notes to be issued by Permanent Custodians Limited as trustee of Sapphire XXIV Series 2020-2 Trust.
"IMPORTANT NOTICE: MOODY'S RATINGS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS. SUCH USE WOULD BE RECKLESS AND INAPPROPRIATE. SEE FULL DISCLAIMERS BELOW."
Issuer: Sapphire XXIV Series 2020-2 Trust
....AUD94.50 million Class A1S Notes, Assigned (P)Aaa (sf)
....AUD150.50 million Class A1L Notes, Assigned (P)Aaa (sf)
....AUD61.25 million Class A2 Notes, Assigned (P)Aaa (sf)
....AUD15.75 million Class B Notes are not rated by Moody's
....AUD9.45 million Class C Notes are not rated by Moody's
....AUD6.30 million Class D Notes are not rated by Moody's
....AUD2.80 million Class E Notes are not rated by Moody's
....AUD2.45 million Class F Notes are not rated by Moody's
....AUD3.71 million Class G1 Notes are not rated by Moody's
....AUD3.29 million Class G2 Notes are not rated by Moody's
The transaction is an Australian residential mortgage-backed securities (RMBS) secured by a portfolio of residential mortgage loans. All receivables were originated by Bluestone Group Pty Limited or Bluestone Mortgages Pty Limited (Bluestone) and are serviced by Bluestone Servicing Pty Limited (Bluestone Servicing).
Bluestone is an experienced securitiser in the Australian RMBS market, having completed 30 term RMBS transactions since 2000. Bluestone also has extensive securitisation experience through its various warehouse funding arrangements. This is Bluestone's second transaction for 2020.
RATINGS RATIONALE
The provisional ratings take into account, among other factors, the evaluation of the underlying receivables and their expected performance, the evaluation of the capital structure and credit enhancement provided to the notes, the availability of excess spread over the life of the transaction, the liquidity facility in the amount of 2.0% of the note balance, the legal structure, and the credit strength and experience of Bluestone Servicing as the servicer.
Moody's MILAN CE -- representing the loss that Moody's expects the portfolio to suffer in the event of a severe recession scenario -- is 12.5%. Moody's expected loss for this transaction is 2.3%.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of consumer assets from the collapse in Australian economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Key transactional features are as follows:
- Whilst the Class A1L and Class A2 Notes rank sequentially in relation to interest and charge-offs, they rank pari passu in relation to principal throughout the life of the transaction. Principal repayments will be allocated pro-rata, based on the stated amount of the notes. This feature reduces the absolute amount of credit enhancement available to the Class A1L Notes.
- The servicer is required to maintain the weighted-average interest rate on the mortgage loans of at least 3.5% above one-month BBSW, which is within the current portfolio yield of 4.2%.
- The Class A1L to Class F Notes will start receiving their pro-rata share of principal if step-down conditions are met.
Key pool features are as follows:
- Based on Moody's classifications, the pool has a weighted-average scheduled loan-to-value (LTV) ratio of 69.3% and around 12.1% of the loans have a scheduled LTV ratio over 80.0%.
- Around 9.8% of the loans in the portfolio are on corona-virus related payment deferrals.
- Around 50.5% of the loans in the portfolio were extended to self-employed borrowers.
- Based on Moody's classifications, the portfolio contains 35.6% of loans granted on the basis of alternative documentation, with a further 0.1% granted on the basis of low documentation.
- Based on Moody's classifications, the portfolio contains 9.1% exposure to borrowers with prior credit impairment histories (default, judgment or bankruptcy). Moody's assesses these borrowers as having a significantly higher default probability.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was Moody's Approach to Rating RMBS Using the MILAN Framework published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1228742. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors That Would Lead to a Downgrade of the Ratings:
A factor that could lead to a downgrade of the notes is worse-than-expected collateral performance. Other reasons that could lead to a downgrade include poor servicing, error on the part of transaction parties, a deterioration in the credit quality of transaction counterparties, or lack of transactional governance and fraud.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Irene Kleyman VP - Senior Credit Officer Structured Finance Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: 61 2 9270 8141 Client Service: 852 3551 3077 Ilya Serov Associate Managing Director Structured Finance Group JOURNALISTS: 61 2 9270 8141 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: 61 2 9270 8141 Client Service: 852 3551 3077
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