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Press Release: Fitch Rates Restructured New Zealand Sales Finance and Credit Cards Trust

22 Sep 2017 9:16 am
 
 
The following is a press release from Fitch Ratings: 
 

Fitch Ratings-Sydney-22 September 2017: Fitch Ratings has affirmed and withdrawn the current ratings of New Zealand Sales Finance and Credit Cards Trust's floating-rate notes due to a restructure of the facility. The restructure is not due to adverse circumstances or a deterioration in performance, and is therefore not a distressed debt exchange. At the same time, Fitch is assigning final ratings to the restructured transaction.

The issuance consists of notes backed by New Zealand consumer receivables originated by Latitude Financial Services Limited. The rating actions are listed below:

The following ratings have been affirmed and withdrawn:

NZD776.0m Class A notes: 'Asf'; Outlook Stable;

- NZD62.7m Class B notes: 'BBBsf'; Outlook Stable;

- NZD50.7m Class C notes: 'BBsf'; Outlook Stable; and

- NZD83.5m Class D notes: 'NRsf'

The following ratings have been assigned to the notes of the restructured transaction:

NZD712.5m Class A notes: 'AAAsf'; Outlook Stable;

- NZD76.0m Class B notes: 'AAsf'; Outlook Stable;

- NZD57.9m Class C notes: 'Asf'; Outlook Stable;

- NZD51.7m Class D notes: 'BBBsf'; Outlook Stable;

- NZD40.7m Class E notes: 'BBsf'; Outlook Stable;

- NZD76.2m Class F notes: 'NRsf'

The notes are issued by The New Zealand Guardian Trust Company Limited in its capacity as trustee of the New Zealand Sales Finance and Credit Cards Trust.

The transaction is a revolving, asset-backed debt programme that features a multi class structure that purchases receivables from the seller on a revolving basis. The receivables pool is subject to eligibility criteria. The transaction has triggers in place to protect the debt holders from deterioration in the credit quality of the portfolio, which either requires rectification or may cause a rapid amortisation event in which all collections will be used to pay down the debt in sequential order.

KEY RATING DRIVERS

- The affirmations reflect Fitch's view that the available credit enhancement and excess spread are able to support the current ratings, the pool's stable credit quality and performance, and Fitch's expectations of economic conditions in New Zealand.

The assignment of the ratings is based on:

Solid Asset Performance: Fitch has set a yield steady state assumption of 12.5%, a charge-off steady state assumption of 4.25% and a monthly payment rate (MPR) steady state of 9.4%. The yield and MPR steady state assumptions are significantly lower than most other international credit card trusts and charge-off steady state assumptions are in line with or lower than other credit card trusts due to solid performance and New Zealand's benign economic conditions in the last few years. Steady state assumptions remain unchanged.

These assumptions are stressed at various multiples dependent on the rating level tested (AAA / AA / A / BBB / BB), and the utilised stresses are as follows:

Gross Yield: 35% / 30% / 25% / 20% / 15%

- MPR: 40% / 35% / 30% / 25% / 20%

- Charge-offs: 4.50x / 3.75x / 3.00x / 2.25x / 1.50x

Sufficient Credit Enhancement: All classes of notes benefit from sufficient subordination and a liquidity facility provided by the Bank of New Zealand.

Performance Triggers: The transaction benefits from several performance triggers, which if breached, can potentially lead to rapid amortisation of the transaction to prevent exposure to further deterioration in asset performance.

Experienced Originator and Servicer: Latitude, through its previous ownership, has been managing large portfolios of consumer receivables for well over a decade in New Zealand. Latitude is not rated and servicer risk is mitigated through back-up servicer arrangements.

Steady Asset Outlook: Fitch expects stable New Zealand credit card performance in the medium term, with marginal upward charge-off movements in 2017, since current levels are significantly lower than historical levels, and unlikely to be sustained. New Zealand's economic conditions are expected to remain benign.

Tax Neutrality: This trust, unlike other New Zealand securitisation trusts, is not tax neutral due to withholding tax on distribution to offshore note subscribers. The overall amount of tax is relatively small and structural features help to mitigate this risk.

RATING SENSITIVITIES

- Fitch has evaluated the sensitivity of the ratings assigned to the New Zealand Sales Finance and Credit Cards Trust to decreased yields, increased charge-offs, and decreased MPR over the life of the transaction.

Fitch's analysis found that the class A, B and C notes were sensitive to low stresses to charge-off rates (25% increase), whereas the class D and E notes were sensitive to a medium stress (50% increase).

Sensitivity to increased charge-offs (25% / 50% / 75%)

- Class A: AA+sf / AA+sf / AAsf

- Class B: AA-sf / A+sf / Asf

- Class C: A-sf / BBB+sf / BBBsf

- Class D: BBBsf / BBB-sf / BB+sf

- Class E: BBsf / BB-sf / B+sf

Analysis also showed that the class A, B, C and D notes were sensitive to low stresses to MPR (15% decrease), and the E note sensitive to medium stresses to MPR (25% decrease).

Sensitivity to decreased MPR (15% / 25% / 35%)

- Class A: AA+sf / AA-sf / A+sf

- Class B: A+sf / Asf / BBB+sf

- Class C: A-sf / BBB+sf / BBB-sf

- Class D: BBB-sf / BB+sf / BBsf

- Class E: BBsf / BB-sf / B+sf

The transaction is not highly sensitive to yield, with the class B, C and D notes sensitive to a medium stress (25% decrease), and class A and E notes sensitive to a severe stress (35% decrease).

Sensitivity to decreased yields (15% / 25% / 35%)

- Class A: AAAsf / AAAsf / AA+sf

- Class B: AAsf / AA-sf / AA-sf

- Class C: Asf / A-sf / A-sf

- Class D: BBBsf / BBB-sf / BBB-sf

- Class E: BBsf / BBsf / BB-sf

Fitch also analysed to determine the increases in charge-offs that would need to occur to result in a rated note being downgraded (i) by one category (ii) to sub-investment grade (iii) to 'CCCsf'.

Class A: 25% / >100% / >100%

- Class B: 25% / 99% / >100%

- Class C: 27% / 55% / >100%

- Class D: 28% / 28% / >100%

- Class E: 28% / n.a / 57%

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

- Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

- A description of the transaction's representations, warranties and enforcement mechanisms ("RW&Es") which relate to the underlying asset pool was not prepared for this transaction because it does not involve the use of offering documents. For further information, please see Fitch's Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.

DATA ADEQUACY

- Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis.

As part of its on-going monitoring, Fitch conducted a file review of a small targeted sample of Latitude Financial Services Limited's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

-

- Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

- Transaction documentation provided by Herbert Smith Freehills, the issuer's counsel.

- Performance data provided by Latitude Financial Services Limited.

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.

Contacts:

- Primary Analyst

- David Carroll

- Director

- +612 8256 0333

- Fitch Australia Pty Ltd.

- Level 15, 77 King St, Sydney, NSW 2000

Secondary Analyst

- James Leung

- Director

- +612 8256 0322

Committee Chairperson

- Natasha Vojvodic

- Senior Director

- +612 8256 0350

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria

- Credit Card ABS Rating Criteria (pub. 15 Jun 2017)

- https://www.fitchratings.com/site/re/899303

- Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017)

- https://www.fitchratings.com/site/re/894478

- Global Structured Finance Rating Criteria (pub. 03 May 2017)

- https://www.fitchratings.com/site/re/897411

- Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017)

- https://www.fitchratings.com/site/re/898537

- Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017)

- https://www.fitchratings.com/site/re/903496

- Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017)

- https://www.fitchratings.com/site/re/893890

Related Research

- Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions

- https://www.fitchratings.com/site/re/882358

Additional Disclosures

- Dodd-Frank Rating Information Disclosure Form

- https://www.fitchratings.com/site/dodd-frank-disclosure/1029551

- Solicitation Status

- https://www.fitchratings.com/site/pr/1029551#solicitation

- Endorsement Policy

- https://www.fitchratings.com/regulatory

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