OREANDA-NEWS. Fitch Ratings has assigned expected ratings to Medallion Trust Series 2015-1's residential mortgage-backed floating-rate notes. The issuance consists of notes backed by first-ranking Australian residential mortgages originated by Commonwealth Bank of Australia Limited (CBA, AA-/Stable/F1+). The ratings are as follows:

AUD920m Class A1 notes: 'AAA(EXP)sf'; Outlook Stable;
AUD60m Class B notes: 'A+(EXP)sf'; Outlook Stable; and
AUD20m Class C notes: 'NRsf'.

The notes are issued by Perpetual Trustee Company Limited in its capacity as trustee of Medallion Trust Series 2015-1.

At the cut-off date, the portfolio contains loans that are conservatively underwritten, a typical trait of CBA loans. The weighted-average (WA) seasoning is 24.1 months, with a WA unindexed loan to value ratio (LVR) of 59.8%, and WA indexed LVR of 58.3%. The current average loan size is AUD298,149, with investment loans representing 23.6% of the pool by balance, and interest-only loans representing 17.5%.

KEY RATING DRIVERS
The transaction includes a pass-through note (Class A1). At the refinancing date of March 2020, the note will either be redeemed by issuance of pass-through floating rate class A1-R notes or the margin on the Class A1 notes will step up by 25bp.

Interest is paid sequentially (after expenses) towards the Class A1, B and then C notes. The reimbursement of all losses is paid after the distribution of interest on Class B notes. Principal will be allocated pro rata towards the Class A1 and B notes should certain conditions be met.

Liquidity support will be provided via excess spread, principal draws and a liquidity facility sized at 0.75% of the notes' balance, with a facility floor of AUD750,000. The liquidity facility will amortise, subject to the floor, while performance-based triggers are satisfied.

CBA has considerable experience in mortgage lending and servicing. It originates loans through its nationwide branch network, mobile sales force, online and telephone sales operations, and third-party mortgage brokers. The arrears level of securitised Medallion transactions has historically tracked in line or below Fitch's Dinkum Index for prime RMBS.

EXPECTED RATING SENSITIVITIES
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 potentially negative rating actions on the notes. Fitch has evaluated the sensitivity of the expected ratings assigned to Medallion Trust Series 2015-1 to increased defaults and decreased recovery rates over the life of the transaction. Its analysis found that the Class A1 notes' ratings remained stable under each of Fitch's mild and severe default and recovery scenarios.

The analysis found the Class B notes' ratings were sensitive to the mild and severe default and recovery scenarios. Under an increased default stress of 15% and 30% the Class B rating dropped down to 'Asf' and 'A-sf' respectively. Under a reduced recovery rate stress of 15% and 30%, the Class B rating dropped to 'A-sf' and 'BBBsf' respectively. The rating was severely impacted by the combination scenario of 15% and 30% increased defaults and 15% and 30% decrease in recovery rates, with ratings at 'BBB+sf' and 'BBsf' respectively.

The transaction structure supports a lenders' mortgage insurance (LMI) independent rating for the Class A1 notes. Therefore LMI is not required to support the rating due to the level of credit support provided by the lower notes.

Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled "Medallion Trust Series 2015-1", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.