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Fitch Assigns Final Ratings to Liberty Series 2017-4 Trust.

Sydney: Fitch Ratings has assigned final ratings to Liberty Series 2017-4 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:

AUD120.0 million Class A1a notes: 'AAAsf'; Outlook Stable;

AUD574.5 million Class A1b notes: 'AAAsf'; Outlook Stable;

EUR56.5 million Class A1c notes: 'AAAsf'; Outlook Stable;

AUD285.6 million Class A2 notes: 'AAAsf'; Outlook Stable;

AUD57.6 million Class B notes: 'NRsf';

AUD21.6 million Class C notes: 'NRsf';

AUD15.6 million Class D notes: 'NRsf';

AUD8.4 million Class E notes: 'NRsf';

AUD10.8 million Class F notes: 'NRsf'; and

AUD20.4 million Class G notes: 'NRsf'.

The notes are issued by Liberty Funding Pty Ltd in respect of the Liberty Series 2017-4 Trust.

At the 15 August 2017 cut-off date, the total collateral pool consisted of mortgages totalling AUD1.2 billion, with a weighted-average (WA) current unindexed loan/value ratio (LVR) of 73.2%. Investment loans make up 41.5% of the pool while loans to self-employed borrowers represent 10.7% of the pool.


Sufficient Credit Support: The class A1a notes are paid prior to any pro rata allocation to the A1b and A1c notes and benefit from 35.0% credit enhancement (CE) provided by the subordinate notes A2, B, C, D, E, F and G notes, while the A2 notes benefit from 11.2% CE provided by the class B, C, D, E, F and G notes. These notes exhibit sufficient CE to support ratings independent of credit provided by LMI.

Pool Characteristics: Conforming mortgages made up 88.9% of the portfolio, with the rest made up of non-conforming mortgages. The pool has a WA unindexed LVR of 73.2% and a WA indexed LVR of 72.4%. The average obligor current loan size is AUD428,574; investment loans represent 41.5% of the pool by balance and interest-only loans represent 39.1%. Low documentation loans comprise 2.8% of the pool. The underlying mortgage pool has low seasoning of 7.5 months.

Experienced Originator and Servicer: Liberty has an extensive record in the specialist lending market, starting its origination programme in 1997. It offers services ranging from mortgage lending to small commercial and auto loans to over 270,000 customers in the conforming and non-conforming space.

Sufficient Liquidity Support: Liquidity support will be provided via multiple structural features, including principal draws, a liquidity facility sized at 3.0% of the note balance with a facility floor of AUD600,000 and a guarantee fee reserve.


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 CE and remaining loss-coverage levels available to the notes. Decreased CE may make certain note ratings susceptible to negative rating action, depending on the extent of the decline in coverage. Hence, Fitch conducts sensitivity analysis by stressing a transaction's initial base-case assumptions.

Impact on note ratings from increasing levels of foreclosure:

Initial 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

Impact on note ratings from decreased recovery rates:

Initial 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

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

Initial 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 42%. 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%.

LMI 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.


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) that are disclosed in the offering document and 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 the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis.

As part of its ongoing monitoring, Fitch also 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.

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 as at 15 August 2017

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:Dec 12, 2017
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