OREANDA-NEWS. Fitch Ratings has assigned final ratings to Light Trust No. 6's residential mortgage-backed floating-rate notes. The issuance consists of notes backed by first-ranking Australian residential mortgages originated by Australian Central Credit Union Ltd (ACCU), trading as People's Choice Credit Union (PCCU). The ratings are as follows:

AUD460m Class A1 notes: 'AAAsf'; Outlook Stable;
AUD16.5m Class A2 notes: 'AAAsf'; Outlook Stable;
AUD9.0m Class AB notes: 'AAAsf'; Outlook Stable;
AUD10.75m Class B notes: 'NRsf';
AUD3.05m Class C notes: 'NRsf'; and
AUD0.7m Class D notes: 'NRsf'.

The notes were issued by Perpetual Corporate Trust Limited in its capacity as trustee of Light Trust No. 6.

At the cut-off date, the total collateral pool consisted of 3,314 loans to 2,900 borrowers, totalling approximately AUD500m.

Sufficient Enhancement: The Class A1, A2 and AB notes benefit from credit enhancement (CE) of 8.0%, 4.7% and 2.9%, respectively. This is provided by the subordinate notes, from lenders' mortgage insurance (LMI), and People's Choice's servicing and underwriting capabilities.

Sequential/Pro Rata Paydown: Principal will be allocated pro rata between the Class A1 and A2 notes throughout the life of the transaction, and pro rata towards all notes if the step-down requirements are met. The class A2 notes are subordinated to the Class A1 notes in relation to charge-offs and interest payments. Interest is paid sequentially (after expenses) towards the Class A1, A2, AB, B, C and then the Class D notes.

Some Geographical Concentration: The geographical distribution of the portfolio is concentrated in South Australia (79.9%) and Northern Territory (8.8%), and is representative of People's Choice' origination network. The pool has 100% LMI cover. The weighted-average (WA) seasoning of the portfolio is 41 months, with a WA unindexed loan/value ratio (LVR) of 60.7% and WA Indexed LVR of 58.7%. The average current loan size is AUD172,414 and loans with an LVR greater than 80% account for 7.5%.

Experienced Originator: People's Choice is one of Australia's largest credit unions by total assets. It is an Authorised Deposit-taking Institution (ADI) headquartered in Adelaide, South Australia and provides banking, residential lending, insurance and wealth creation services. Historically, the arrears levels of Light Trust transactions have tracked below the Dinkum Index.

Unexpected decreases in residential property value, increases in the frequency of foreclosures, and loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, which could result in negative rating action on the notes.

Fitch has evaluated the sensitivity of the ratings on the notes to increased defaults and decreased recovery rates over the life of the transaction. Its analysis found that the Class A1 and A2 notes' ratings remained stable under the mild and severe default and recovery scenarios. The Class AB note was sensitive to the severe default scenario of a 30% increase in default rate, with the rating declining to 'AA+sf'. Under the severe stress of a 30% decline in recovery rate, the Class AB rating declined to 'AA-sf'.

The ratings of the Class A1 and A2 notes were impacted only by a combination scenario of 30% increase in default rate and 30% decrease in recovery rates, with the ratings declining to 'AAsf.' The Class AB note rating was impacted under the mild and severe combination scenarios, declining to 'AA+sf' and 'A-sf', respectively.

The transaction structure supports an LMI independent rating for the Class A1 and A2 notes; therefore, LMI is not required to support the ratings. The Class A1 notes are LMI independent due to the level of credit support provided by the lower notes; the Class A2 notes are additionally supported by credit enhancement provided by excess available income and principal collections expected to be received prior to and immediately after the settlement date.

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 People's Choice compared with People's Choice'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.

Key Rating Drivers and Rating Sensitivities are further discussed in the corresponding new issue report entitled "Light Trust No. 6", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.