Fitch Assigns ANZ Bank New Zealand's Series 2016-1 Mortgage Covered Bonds 'AAA'; Outlook Stable
KEY RATING DRIVERS
The rating is based on ANZNZ's Long-Term Issuer-Default Rating (IDR) of 'AA-', a Discontinuity Cap of 3 notches and the asset percentage (AP) that Fitch relies on in its analysis being the highest nominal AP in last 12 months at 71.3%. This provides more protection than Fitch's 'AAA' breakeven AP of 89.5%. The Outlook on the covered bonds' reflects the Stable Outlook on ANZNZ's IDR.
The 'AAA' breakeven AP of 89.5% corresponds to a breakeven overcollateralisation (OC) of 11.7%, which is lower than the 12.4% published in July 2016. The change is due to improved asset and liability mismatches after the new issuance, with the weighted-average residual life of the assets at 12.2 years and the liabilities increasing to 3.3 years, reducing the asset disposal loss component to 13% from 15.2%. The credit loss component remained stable at 5.2%.
The stressed cash flow valuation component reduces the 'AAA' breakeven OC by 4.6%, a lower positive effect than previously, due to updated prepayment assumptions for New Zealand reducing the excess spread modelled by Fitch for the programme. The breakeven AP considers whether timely payments are met in an 'AA' scenario and tests for recoveries given default of at least 91% in an 'AAA' scenario.
The cover pool consisted of 58,375 loans secured by first-ranking mortgages of New Zealand residential properties as at end-July 2016, with a total outstanding balance of NZD10.4bn. The cover pool's weighted-average loan/value ratio was 54.6% and the weighted-average seasoning of the loans was 28.3 months. The cover pool includes loans linked to flexi-loans (an at-call secured line of credit) and short-dated bullet loans, which in Fitch's opinion, increases the portfolio's credit risk.
The 'AAA' rating would be vulnerable to a downgrade should any of the following occur: ANZ Bank New Zealand Limited 's IDR is downgraded by three notches; the D-Cap falls by three notches; or the AP that Fitch takes into account in our analysis rises above the 'AAA' breakeven AP of 89.5%.
Fitch's 'AAA' breakeven AP for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore, it cannot be assumed that the 'AAA' breakeven AP, which maintains the covered bond rating, will remain stable over time.