OREANDA-NEWS. June 04, 2015. Fitch Ratings has affirmed the ratings of nine 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 (CBA, 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 have remained within the agency's expectations.

At 31 March 2015, Series 2010-1 SWAN Trust had the highest level of 30+ arrears at 1.36%, above the Fitch Dinkum Index of 1.15%. Series 2010-2 SWAN Trust had the lowest level of 30+ arrears at 0.47% and SWAN Trust 2011-1 had arrears at 0.52%. Losses have remained low since closing, totalling AUD97,228 across two of the three transactions. All losses to date were covered by lenders' mortgage insurance (LMI), excess spread or the servicer.

Fitch's calculated weighted average indexed LVRs ranged from 32.9% in Series 2010-1 SWAN Trust to 44.2% in Series 2010-2 SWAN Trust, and the weighted average seasoning is greater than five years for each of the transactions. Around 40% of the collateral backing the pools is concentrated to Western Australia.

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

The transactions have satisfied their respective documented step-down conditions, with subordination available to the rated notes being at least double that provided at issuance. Series 2010-2 SWAN Trust and Series 2011-1 SWAN Trust each feature a fixed rate, soft bullet note (Class A3 and A2 respectively) with refinancing dates five years after issuance.

RATING SENSITIVITIES
Other than the Class AB notes of Series 2010-1 SWAN Trust, the ratings of the notes are independent of downgrades to the LMI provider's ratings. The Class AB notes could withstand a three notch downgrade to the LMI insurers. At the 'AAAsf' loss severity of 18.67%, the Class A and B notes of the Series 2010-1 could withstand an increase in foreclosures to 58.9% and 18.21%, respectively.

At the 'AAAsf' modelled loss severity of 20.33%, the Class A2 and A3 of the SWAN 2010-2 transaction are insensitive to increases in additional foreclosures. At the same level, the Class AB and AC notes can withstand an increase in foreclosures to 55.1% and 35.9%, respectively.

At the 'AAAsf' modelled loss severity of 19%, the SWAN 2011-1 Class A1, A2 and AB notes can withstand an increase in foreclosures to 74.2%, 74.2% and 29.0%.

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

DATA ADEQUACY
Fitch conducted a file 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. No material discrepancies were noted in the underwriting practices of Bank of
Western Australia. The file review also checked the accuracy of the data file provided to Fitch for its rating analysis. The file review reported no material errors that would impact Fitch's rating analysis.

A comparison of the transactions' representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is also available by accessing the reports and/or links given under Related Research below.

Fitch has affirmed the following ratings (the note balances are as of 31 March 2015):
Series 2010-1 SWAN Trust:
AUD 143.6 m Class A notes (ISIN AU3FN0010435) affirmed at 'AAAsf'; Outlook Stable;
AUD 12.3m Class AB notes (ISIN AU3FN0010443) affirmed at 'AAAsf'; Outlook Stable.

Series 2010-2 SWAN Trust:
AUD 11.4m Class A2 notes (ISIN AU3FN0012209) affirmed at 'AAAsf'; Outlook Stable;
AUD 210.0m Class A3 notes (ISIN AU3CB0164937) affirmed at 'AAAsf'; Outlook Stable;
AUD 20.8m Class AB notes (ISIN AU3FN0012217) affirmed at 'AAAsf'; Outlook Stable; AUD 10.7m Class AC notes (ISIN AU3FN0012225) affirmed at 'AAAsf'; Outlook Stable.

Series 2011-1 SWAN Trust:
AUD 47.1m Class A1 notes (ISIN AU3FN0014387) affirmed at 'AAAsf'; Outlook Stable;
AUD 100m Class A2 notes (ISIN AU3CB0185106) affirmed at 'AAAsf'; Outlook Stable;
AUD 14.7m Class AB notes (ISIN AU3FN0014395) affirmed at 'AAAsf'; Outlook Stable.