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Fitch Assigns Expected Ratings to Liberty Series 2018-1 Trust.

Sydney: Fitch Ratings has assigned expected ratings to Liberty Series 2018-1 Trust's residential mortgage-backed floating-rate notes. The issuance consists of notes backed by residential conforming and non-conforming mortgages originated by Liberty Financial Pty Ltd. The ratings are as follows:

AUD70.0 million Class A1a notes: 'AAA(EXP)sf'; Outlook Stable;

*AUD[TBD] million Class A1b notes: 'AAA(EXP)sf'; Outlook Stable;

*EUR[TBD] million Class A1c notes: 'AAA(EXP)sf'; Outlook Stable;

AUD173.6 million Class A2 notes: 'AAA(EXP)sf'; Outlook Stable;

AUD25.9 million Class B notes: 'NR(EXP)sf';

AUD13.3 million Class C notes: 'NR(EXP)sf';

AUD7.7 million Class D notes: 'NR(EXP)sf';

AUD9.1 million Class E notes: 'NR(EXP)sf';

AUD2.8 million Class F notes: 'NR(EXP)sf'; and

AUD12.6 million Class G notes: 'NR(EXP)sf'.

*The Australian dollar equivalent of the class A1b and A1c notes on the closing date will equal AUD385.0 million.

The notes will be issued by Liberty Funding Pty Ltd in its capacity as issuer of Liberty Series 2018-1 Trust.

At the 28 February 2018 cut-off date, the total collateral pool consisted of mortgages totalling approximately AUD700 million, with a weighted-average (WA) current unindexed loan/value ratio (LVR) of 68.5%.


Macroeconomic Factors: Fitch expects stable mortgage performance, which is the basis of our Stable Outlook, to be supported by sustained economic growth in Australia that is driven by steady interest rates, unemployment rate and GDP, which Fitch forecasts at 2.7% in 2019.

Asset Analysis: The asset pool comprises 88.9% conforming and 11.1% non-conforming mortgages. The pool has a WA unindexed loan/value ratio (LVR) of 68.5% and a WA indexed LVR of 68.3%. The average obligor current loan size is AUD412,249; investment loans represent 37.2% of the pool by balance and interest-only loans represent 20.7%. Low documentation loans comprise 3.3% of the pool. The underlying mortgage pool has low seasoning of 7.3 months.

Operational Risk: Liberty has an extensive record in the specialist lender market, starting its origination programme in 1997. Its lending practices are in line with other comparable lenders. It offers services ranging from mortgage lending to business and auto loans to over 280,000 customers, both in the conforming and non-conforming space.

Cash-Flow Analysis: Credit enhancement of 35.0% for the class A1a, A1b and A1c notes and 10.2% for class A2 notes and structural features, such as a liquidity facility sized at 2.0% of the total invested note balance and a guarantee fee reserve that is available to cover losses and shortfalls, support the transaction and can withstand all relevant Fitch 'AAAsf' stresses applied in our cash-flow analysis.


Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case and are likely to result in a decline in credit enhancement and remaining loss-coverage levels available to the notes. Decreased credit enhancement may make certain note ratings susceptible to negative rating action, depending on the extent of the coverage decline.

Hence, Fitch conducts sensitivity analysis of the ratings by stressing the transaction's initial base-case assumptions. Fitch applies the recovery rate stress to the pre-LMI recovery rate to isolate the effect of a change in recovery proceeds at the borrower level.

Expected impact on note ratings from increasing levels of foreclosure:

Expected rating for A1a/A1b/A1c/A2: AAAsf/AAAsf/AAAsf/AAAsf

Increase in foreclosure stress by 15%: AAAsf/AAAsf/AAAsf/AAAsf

Increase in foreclosure stress by 30%: AAAsf/AAAsf/AAAsf/AAAsf

Expected impact on note ratings from decreased recovery rates:

Expected rating for A1a/A1b/A1c/A2: AAAsf/AAAsf/AAAsf/AAAsf

Reduction in recoveries by 15%: AAAsf/AAAsf/AAAsf/AAAsf

Reduction in recoveries by 30%: AAAsf/AAAsf/AAAsf/AAAsf

Expected impact on note ratings from increased rates of foreclosure and decreased recovery rates:

Expected rating for A1a/A1b/A1c/A2: AAAsf/AAAsf/AAAsf/AAAsf

Increase in foreclosure stress by 15% and a reduction in recoveries by 15%: AAAsf/AAAsf/AAAsf/AAAsf

Increase in foreclosure stress by 30% and a reduction in recoveries by 30%: AAAsf/AAAsf/AAAsf/AAsf

Further analysis provides an insight into the model-implied sensitivities the transaction faces when recovery-rate assumption stresses are increased to a level that is required to reduce the rating of the class A1a, A1b, A1c and A2 notes (i) by one full category, (ii) to non-investment grade and (iii) to 'CCCsf'.

Our defined sensitivity analysis shows that the class A2 notes are expected to be downgraded to 'AA+sf' if the recovery rates reduce by 45%. The rating on the class A2 notes remain at investment grade even with a recovery rate of 0%. All other rated classes are expected to maintain their 'AAAsf' ratings, even with a recovery rate of 0%. Lenders' mortgage insurance is not required to support the ratings on the class A1a, A1b, A1c and A2 notes due to the level of credit support provided by the lower-ranking notes.

Key rating drivers and expected rating sensitivities are further discussed in the corresponding presale report entitled "Liberty Series 2018-1 Trust", published today.


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


A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) disclosed in the offering document that relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class, as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.


Fitch reviewed a small targeted sample of Liberty'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.

Fitch also expects to receive the results of an agreed-upon procedure conducted on the portfolio prior to closing, which checks the accuracy of the data file provided to Fitch.

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.


The information below was used in the analysis:

Loan-by-loan data provided by Liberty Financial Pty Ltd as at 28 February 2018

Transaction documentation provided by King & Wood Mallesons, the issuer's counsel.

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Jul 14, 2018
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