Fitch Places 1 Tranche of Flexi ABS on RWN; Affirms 9 Tranches
OREANDA-NEWS. Fitch Ratings has placed one tranche of Flexi ABS Trust 2013-1 (Flexi 2013-1) on Rating Watch Negative (RWN) and at the same time affirmed four tranches of that transaction. Fitch has also affirmed five tranches of Flexi ABS Trust 2015-1 (Flexi 2015-1).
The action was taken following a review of the transactions' exposure to a commercial dispute between Flexirent Capital Pty Ltd (Flexi) and one of the vendors in both transactions who acts as an introducer of receivables.
The transactions are backed by unsecured commercial lease receivables originated by Flexi. The notes were issued by Perpetual Corporate Trust Limited in its capacity as trustee of the two transactions.
The rating actions are as listed below:
Flexi ABS Trust 2013-1
-AUD10.8m Class A notes (ISIN AU3FN0019444) affirmed at 'AAAsf'; Outlook Stable
-AUD2.7m Class B notes (ISIN AU3FN0019451) affirmed at 'AA+sf'; Outlook Stable
-AUD4.0m Class C notes (ISIN AU3FN0019469) affirmed at 'AAsf'; Outlook Stable
-AUD2.0m Class D notes (ISIN AU3FN0019477) affirmed at 'Asf'; Outlook Stable
-AUD1.5m Class E notes (ISIN AU3FN0019485) 'BBBsf' placed on Rating Watch Negative.
Flexi ABS Trust 2015-1
-AUD87.3m Class A notes (ISIN AU3FN0027256) affirmed at 'AAAsf'; Outlook Stable
-AUD9.4m Class B notes (ISIN AU3FN0027264) affirmed at 'AAsf'; Outlook Stable
-AUD9.4m Class C notes (ISIN AU3FN0027272) affirmed at 'Asf'; Outlook Stable
-AUD4.7m Class D notes (ISIN AU3FN0027280) affirmed at 'BBBsf'; Outlook Stable
-AUD6.3m Class E notes (ISIN AU3FN0027298) affirmed at ''BBsf'; Outlook Stable.
KEY RATING DRIVERS
Since the transactions were last reviewed in April 2015, a commercial dispute has arisen between Flexi and one of the main vendors in both transactions. The dispute relates to the calculations of obligor payments due. The vendor continues to make payments to the trust; however, a substantial portion of the pools are in arrears due to the disputed calculations. Flexi 2013-1, at its small size, is the most exposed to the vendor, which accounts for 20% of remaining assets. At 31 March 2016, its 30+ day arrears are 15.7% and 90+ day arrears are 8%. Flexi 2015-1 has 30+ arrears at 5.3% and 90+ arrears at 1.9%.
Removing the impact of these loans on arrears, 30+ arrears are low, at 1.5% and 0.4% for Flexi 2013-1 and Flexi 2015-1 respectively. Losses remain below base cases, at 3.5% for Flexi 2013-1 and 1.4% for Flexi 2015-1. There are currently no charge offs to any of the notes.
Flexi has informed Fitch both parties have undertaken to perform a reconciliation of the disputed calculations and are working collaboratively to resolve the issue. Once the reconciliation is completed, the relevant party will make the required payment to the trust. This reconciliation and resolution is expected to be completed by 30 June 2016. Fitch expects to resolve the RWN at the end of this period.
Flexi 2013-1 is currently paying sequentially due to the arrears trigger being breached. This is resulting in a significant build-up of subordination. Negative rating action on the Class E Flexi 2013-1 notes will be taken if the dispute is not resolved in the expected time period or if the resolution results in a significant loss to the transaction. In this event, the Class E notes may be downgraded by up to one category. A full loss of the disputed receivables will not impact the ratings of the Class A to D notes, hence they have been affirmed.
Flexi 2015-1 is paying pro-rata to all classes except Class F, resulting in a build-up of credit enhancement. If the arrears trigger is breached the transaction will revert to sequential pay. Exposure to the assets is 5% and there is sufficient subordination to protect the notes in the event of total non-payment. As a result, Fitch has affirmed all rate notes for Flexi 2015-1.
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 Flexi compared to its credit policy at the time of underwriting. Fitch checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.