OREANDA-NEWS. Fitch Ratings has assigned final ratings to La Trobe Financial Capital Markets Trust 2015-1's residential mortgage-backed floating rate notes. The issuance consists of notes backed by Australian non-conforming residential mortgages originated by La Trobe Financial Services Pty Limited. The ratings are as follows:

AUD162.5m Class A1 notes: 'AAAsf'; Outlook Stable;
AUD44.5m Class A2 notes: 'AAAsf'; Outlook Stable;
AUD14.5m Class B notes: 'NRsf';
AUD10.8m Class C notes: 'NRsf';
AUD7.5m Class D notes: 'NRsf';
AUD4.8m Class E notes: 'NRsf';
AUD2.7m Class F notes: 'NRsf'; and
AUD2.9m Equity notes: 'NRsf'.

The notes will be issued by Perpetual Corporate Trust Limited in its capacity as trustee of La Trobe Financial Capital Markets Trust 2015-1.

At the cut-off date, the total collateral pool consisted of residential mortgages provided to 1,011 borrowers originated by La Trobe Financial, totalling approximately AUD250m. Credit-impaired mortgages made up 35.4% of the pool, while reduced documentation loans represented 56.3% of the portfolio. Interest-only loans accounted for 35.9% of the mortgage portfolio, with investment loans representing 34.8%, and owner-occupier loans making up the remainder. The agency has incorporated all the above-mentioned factors into its credit analysis of the transaction.

KEY RATING DRIVERS
Sufficient Subordination: The Class A1 and A2 notes benefit from credit enhancement (CE) of 35.0% and 17.2%, respectively, provided by: the subordinate Class B, C, D, E, F and equity notes; the liquidity reserve; the yield enhancement reserve; and La Trobe's servicing and underwriting capabilities.

Strong Excess Spread: The transaction benefits from a strong flow of excess income, which is available to cover losses. La Trobe's non-conforming borrowers pay significantly higher interest rates in comparison with borrowers of conforming loans.

Structure Supports Higher Notes: The amortisation mechanisms and the subordination of the equity note interest help support faster pay down of lower-rated notes before the call date by allocating a part of excess spread to the remaining principal, progressively cutting the weighted average margin. The yield enhancement reserve will help support the Class A notes, if required.

Significant Low-Doc Composition: Low-documentation loans comprise 56.3% of the portfolio. The pool's weighted-average (WA) seasoning is 37.7 months, weighted average current loan-to-value ratio is 66.7% and credit-impaired loans are 35.4%. The pool is geographically diversified across Australia.

Experienced Originator/Servicer: La Trobe is an experienced specialty mortgage lender with a history of over 60 years.

RATING SENSITIVITIES
Unexpected decreases in the value of residential property, or increases in the frequency of foreclosures, and loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, in turn potentially resulting in negative rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to the notes to increased defaults and decreased recovery rates over the life of the transaction.

Its analysis found that both the Class A1 and A2 notes' ratings under Fitch's medium (15% increase) default scenario were downgraded by two notches to 'AAsf', while under the severe (30% increase) default scenario, the ratings were downgraded by three notches to 'AA-sf'. Similarly, under Fitch's medium (15% decrease) recovery rate scenario, the ratings were downgraded by two notches to 'AAsf' and under a severe (30% decrease) recovery scenario, the Class A1 rating was downgraded by four notches to 'AA-sf' and the Class A2 notes' were downgraded by four notches to 'A+sf'.

The transaction shows greater sensitivity to a combination of both increased defaults and decreased recovery rates with the Class A1 and A2 notes both experiencing a three-notch downgrade under the medium multiple stress scenario. The Class A1 and A2 notes experienced a five-notch downgrade under a severe multiple stress scenario.

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 La Trobe compared to La Trobe 's credit policy at the time of underwriting. No material discrepancies were noted in the underwriting practices of La Trobe. 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.

Key Rating Drivers and Rating Sensitivities are further discussed in the corresponding new issue report entitled "La Trobe Financial Capital Markets Trust 2015-1", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.