OREANDA-NEWS. Fitch Ratings has affirmed the ratings of eight tranches from three SWAN Trust RMBS transactions. The transactions are backed by pools of Australian conforming residential mortgages originated by the Bank of Western Australia, now part of the Commonwealth Bank of Australia Limited (AA-/Stable). The rating actions are listed at the end of this commentary.

KEY RATING DRIVERS
The affirmations reflect Fitch's view that the available credit enhancement is sufficient to support the notes' current ratings and the agency's expectations of Australia's economic conditions. Credit quality and performance of the underlying loans remain within Fitch's expectations.

As per the APAC Residential Mortgage criteria, the default model was not run for the three transactions as a review of pre-determined performance triggers indicates the transactions display stable asset performance.

At 31 March 2016, Series 2010-1 SWAN Trust had the highest level of 30+ arrears at 1.9%. This was above the Fitch Dinkum Index of 0.95%. Series 2010-2 SWAN Trust had the lowest level of 30+ arrears, at 0.5%, and Series 2011-1 SWAN Trust had arrears at 1.3%. Losses remain low since closing, totalling AUD233,599 across two of the three transactions. Series 2011-1 SWAN Trust has not experienced any losses since closing. All losses to date were covered by lenders' mortgage insurance (LMI), excess spread or the servicer.

Fitch's weighted-average LVRs ranged from 42.9% in Series 2010-1 SWAN Trust to 49.6% in Series 2010-2 SWAN Trust. The weighted-average seasoning is greater than five years for each transaction. Around 40% of the collateral backing the pools is concentrated in Western Australia.

The underlying pools are fully covered by LMI, provided by QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength Rating: AA-/Stable).

The transactions have satisfied their respective documented step-down conditions, with subordination available to the rated notes at least double that provided at issuance. Series 2011-1 SWAN Trust features a fixed-rate, soft-bullet note, class A2, with a refinancing date five years after issuance.

RATING SENSITIVITIES
The ratings are not expected to be affected by any foreseeable change in performance. The pro-rata amortisation will switch to sequential when the call-option triggers are met, mitigating tail-risk.

Other than the class AB notes of Series 2010-1 SWAN Trust, the notes' ratings are independent of downgrades to the LMI provider's ratings. The class AB notes could withstand a three-notch downgrade to the LMI insurer.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch conducted a review of 10 sample loan files focusing on the underwriting procedures conducted by Bank of Western Australia compared to its credit policy at the time of underwriting. Fitch checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.

Full list of rating actions, with note balances as at March 2016:

Series 2010-1 SWAN Trust:
AUD110.6m Class A notes (ISIN AU3FN0010435) affirmed at 'AAAsf'; Outlook Stable
AUD9.4m Class AB notes (ISIN AU3FN0010443) affirmed at 'AAAsf'; Outlook Stable

Series 2010-2 SWAN Trust:
AUD160.9m Class A3-R notes (ISIN AU3FN0029492) affirmed at 'AAAsf'; Outlook Stable
AUD15.1m Class AB notes (ISIN AU3FN0012217) affirmed at 'AAAsf'; Outlook Stable
AUD7.7m Class AC notes (ISIN AU3FN0012225) affirmed at 'AAAsf'; Outlook Stable

Series 2011-1 SWAN Trust:
AUD6.9m Class A1 notes (ISIN AU3FN0014387) affirmed at 'AAAsf'; Outlook Stable
AUD100.0m Class A2 notes (ISIN AU3CB0185106) affirmed at 'AAAsf'; Outlook Stable
AUD8.1m Class AB notes (ISIN AU3FN0014395) affirmed at 'AAAsf'; Outlook Stable