MELBOURNE (S&P Global Ratings) March 30, 2023--S&P Global Ratings today raised its ratings on five classes of notes issued by Permanent Custodians Ltd. as trustee for Pepper I-Prime 2021-1 Trust (see list). At the same time, we affirmed our ratings on two classes of notes. The transaction is a securitization of prime residential mortgages originated by Pepper HomeLoans Pty Ltd. (Pepper).
The rating actions reflect our view of the credit risk of the pool, which has been amortizing in line with our expectation. Credit support provided in percentage terms has increased as the pool paid down. This credit support comprises note subordination for all rated notes and excess spread to the extent available. Current loan-to-value ratios across the pool have been declining, lowering our expectation of loss for the pool.
Our expectation is that the various mechanisms to support liquidity within the transaction, including an amortizing liquidity facility, and principal draws, are sufficient under our cash flow stress assumptions to ensure timely payment of interest.
We expect the availability of a yield-enhancement reserve, amortization reserve, and overcollateralization amount, which will all be funded by excess spread, to cover potential yield shortfalls and loss reimbursements and to repay principal on the notes at various stages of the transaction's term.
As of Feb. 28, 2023, the pool has a balance of about A$266.7 million and a pool factor of about 35.56%. The pool's weighted-average loan-to-value ratio is 66.70% and weighted-average seasoning is 40.65 months.
We have factored the prepayment rates and arrears performance of the transaction into our analysis. As of Feb. 28, 2023, the prepayment rate was 35.82%, which is much higher than the S&P Global Ratings Prepayment Index (SPPI) for prime loans. Over the last 12 months, the arrears performance generally has also been higher relative to the S&P Global Ratings Performance Index (SPIN)for prime loans. As of Feb. 28, 2023, loans greater than 30 days in arrears make up 1.20% of the pool, of which those more than 90 days in arrears represent 0.71%. However, losses to date have been minimal and all have been covered by excess spread. There have been no charge-offs to any of the notes.
For the raised ratings, constraining factors on the magnitude of upgrades include the higher level of delinquency relative to Prime SPIN, high prepayment rates which may constrain the buildup of excess spread in the deal, and the various characteristics in the portfolio. These characteristics include loans to the self-employed, low documentation loans, investment loans, relatively higher loan-to-value ratios and a proportion of higher than average loans sizes that are susceptible to volatility and may be more sensitive to changes in the economic environment.
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates In Structured Finance, Oct. 18, 2019
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
- Criteria | Structured Finance | RMBS: Assumptions: Australian RMBS Postcode Classification Assumptions, July 10, 2013
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- Criteria | Structured Finance | RMBS: Australian RMBS Rating Methodology And Assumptions, Sept. 1, 2011
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- Criteria | Structured Finance | RMBS: Methodology And Assumptions For Analyzing The Cash Flow And Payment Structures Of Australian And New Zealand RMBS, June 2, 2010
- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28, 2009
Related Research
- 2023 Outlook Assumptions For The Australian RMBS Market, Jan. 6, 2023
- An Overview Of Australia's Housing Market And Residential Mortgage-Backed Securities, Nov. 28, 2022
- Monetary Tightening To Test Australian RMBS, June 16, 2022
- ESG Industry Report Card: Residential Mortgage-Backed Securities, March 31, 2021
- Australian Prime And Nonconforming RMBS: What's The Difference? Nov. 17, 2019
- Australia And New Zealand Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, April 17, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- RMBS Performance Watch: Australia, published quarterly
- RMBS Arrears Statistics: Australia, published monthly
Ratings Raised
Pepper I-Prime 2021-1 Trust
- Class B: to AA+ (sf) from AA (sf)
- Class C: to AA (sf) from A (sf)
- Class D: to A (sf) from BBB (sf)
- Class E: to BBB (sf) from BB (sf)
- Class F: to BB (sf) from B (sf)
Ratings Affirmed
Pepper I-Prime 2021-1 Trust
- Class A1: AAA (sf)
- Class A2: AAA (sf)
AUSTRALIA
S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
| Primary Credit Analyst: | Mallika Khare, Melbourne +61 3 9631 2135; mallika.khare@spglobal.com |
| Secondary Contact: | Alisha Treacy, Melbourne + 61 3 9631 2182; alisha.treacy@spglobal.com |
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