OREANDA-NEWS. Fitch Ratings has affirmed six classes of notes from Pepper Prime 2012-1 Trust and Pepper Prime 2013-1 Trust. The notes were issued by Permanent Custodians Limited as trustee of the transactions. The transactions are securitisations of Australian residential mortgages originated by GE Capital and purchased by Pepper Australia Pty Limited in August 2011. A full list of rating actions follows at the end of this commentary.

KEY RATING DRIVERS

The affirmation reflects 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.

As per the APAC Residential Mortgage criteria, the default model was not run for Pepper Prime 2012-1 Trust as a review of pre-determined performance triggers indicated that the transaction displayed stable asset performance. The default model was run for Pepper Prime 2013-1 Trust.

As of 31 May 2016, 30+ days arrears for Pepper 2012-1 and Pepper 2013-1 were 2.50% and 2.49%, respectively, above the Fitch's Dinkum RMBS index of 0.95%.The underlying pools are 100% covered by LMI, provided by Genworth Financial Mortgage Insurance Pty Limited (Insurer Financial Strength Rating: A+/Stable) and QBE Lenders' Mortgage Insurance Limited (Insurer Financial Strength Rating: AA-/Stable). As of May 2016, losses prior to LMI claims for both transactions were below 0.11% of the original pool balance. LMI covered 84.4% and 75.3% of all losses for Pepper Prime 2012-1 Trust & Pepper Prime 2013-1 Trust, respectively. All losses not covered by LMI have been covered by excess spread.

RATING SENSITIVITIES

Sequential pay-down has increased credit enhancement for the senior notes of Pepper Prime 2012-1 Trust and Pepper Prime 2013-1 Trust, with the rated notes able to withstand multiples of the latest reported arrears. Fitch does not expect modest changes in performance to affect the ratings. The rated notes for all the transactions are independent of downgrades of the LMI providers' ratings.

For Pepper Prime 2013-1 Trust, Fitch's 'AAAsf' breakeven stressed default rate is 11.5%. Among the class A notes, the class AR-u and A-a notes can withstand an additional 55.8% in defaults at Fitch's 'AAAsf' loss severity. The class AB notes can withstand 16.6% additional defaults at the 'AAAsf' loss severity.

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 15 sample loan files focusing on the underwriting procedures conducted by Pepper Australia Pty Limited compared to its 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.

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

The full list of rating actions is shown below:

Pepper Prime 2012-1 Trust:

AUD53.7m Class AR-u (ISIN AU3FN0024907) notes affirmed at 'AAAsf'; Outlook Stable;

AUD73.5m Class A-a (ISIN AU3FN0017075) notes affirmed at 'AAAsf'; Outlook Stable; and

AUD18.9m Class AB (ISIN AU3FN0017083) notes affirmed at 'AAAsf'; Outlook Stable.

Pepper Prime 2013-1 Trust:

AUD103.0m Class AR-u (ISIN AU3FN0027942) notes affirmed at 'AAAsf'; Outlook Stable;

AUD68.7m Class A-a (ISIN AU3FN0019675) notes affirmed at 'AAAsf'; Outlook Stable; and

AUD20.3m Class AB (ISIN AU3FN0019683) notes affirmed at 'AAAsf'; Outlook Stable.