Fitch Assigns Ratings to Nifty Warehouse Trust No.4
AUD350m Class A1 notes: 'AAsf'; Outlook Stable;
AUD150m Class A2 notes: 'AAsf'; Outlook Stable;
AUD71.5m Class B notes: 'NRsf;
The notes were issued by Perpetual Trustee Company Limited in its capacity as trustee of Nifty Warehouse Trust No. 4.
The collateral pool consists of auto loan receivables originated by NFSA that are subject to eligibility criteria, and excess concentration parameters that limits pool concentration of loan products and asset types, obligor and geographic exposure, and various asset characteristics. The current collateral pool consists of 21,107 loans with a total portfolio balance of AUD486.2m and an average size of AUD23,033. The pool comprises 34.5% chattel mortgages and 65.5% consumer loan receivables that have been originated to Australian customers. The weighted average remaining term stands at 44 months, and the weighted average balloon payment is AUD12,880.
The transaction also benefits from a large and diverse number of small business borrowers across a broad range of industries, with the largest industry concentration in construction (18.8%).
KEY RATING DRIVERS
Sufficient Enhancement: Initial hard credit enhancement (CE) available to the 'AAsf' Class A1 and A2 notes totals 12.5%, CE will be maintained at the greater of 12.5% and AUD10m.
Amortisation Triggers: The transaction is a revolving facility that is bound by amortisation triggers to protect and mitigate risk to the transaction from potential future loss. Included, among other triggers, is an excess spread trigger that ensures sufficient excess spread is available in the transaction.
Diverse and Granular Portfolio: Portfolio parameters ensure the revolving pool maintains a diverse and granular mix of asset characteristics, and is geographically distributed across Australia. Excess concentration triggers are in place to mitigate risk of excessive concentration of specific asset characteristics and to maintain a well balanced portfolio.
Diversified Balloon Payments: The pool comprises amortising principal, and interest loan receivables, with varying balloon amounts payable at maturity. Portfolio parameters ensure balloon payments are not concentrated in a single monthly payment date in order to minimise refinancing risk.
Available Liquidity: Liquidity support provided by the deferred account will ensure stable cash flows for the Class A1 and A2 notes and trust expenses. The deferred account will be sized at the greater of AUD300,000 and 0.85% of the aggregate invested amount of all Classes of notes.
No Residual Value Risk: All securitised loans are structured so that there is no exposure to residual value risk, with the borrower liable for such risks at all times.
Hedging Arrangements: Hedging arrangements are in place to address fixed-to-floating rate mismatches between the fixed rate earned on the assets and floating rate liability payments. The rating assigned to the Class A1 and A2 notes are constrained by Mizuho Bank Ltd's rating (A-/Stable/F1) as swap counterparty.
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case, and would likely result in a decline in CE and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage.
Fitch has evaluated the sensitivity of the ratings assigned to Nifty Warehouse Trust No.4 to increased defaults and decreased recovery rates over the life of the transaction. Our analysis found that the rating of the Class A1 and A2 notes were negatively impacted only under severe default stress (50%), and were not impacted under mild (10%) or moderate (25%) default stress.
The Class A1 and A2 notes remained stable under mild (10%), moderate (25%) and severe (50%) recovery stress. The Class A1 and A2 notes remained stable under mild and moderate combination stresses of increased defaults and reduced recoveries, only being adversely impacted under more severe combined stresses of 50% default stress and 50% reduced recoveries.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch conducted a file review of 10 sample loan files focusing on the underwriting procedures conducted by NFSA compared to NFSA's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.