triton smsf bond trust 2020 series 1 · 2020. 7. 7. · smsf borrowers, secured by first registered...

Presale:

Triton SMSF Bond Trust 2020 Series 1July 6, 2020

Preliminary Ratings

Class Preliminary rating Preliminary amount (mil. A$) Credit support (%)Credit support provided

(%)

A1-AU AAA (sf) 137.50 4.79 15.00

A1-3Y AAA (sf) 75.00 4.79 15.00

A2 AAA (sf) 17.50 4.79 8.00

AB AAA (sf) 7.50 4.79 5.00

B AA (sf) 4.00 3.25 3.40

C A (sf) 3.50 1.96 2.00

D BBB (sf) 2.00 1.07 1.20

E BB (sf) 1.50 0.52 0.60

F B (sf) 0.50 0.35 0.40

G NR 1.00 N/A N/A

Note: This presale report is based on information as of July 7, 2020. The ratings shown are preliminary. Subsequent information may result inthe assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed asevidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities. The class A1 notes are defined as theclass A1-AU, and class A1-3Y notes. NR--Not rated. N/A--Not applicable.

Profile

Expected closingdate

July 2020

Expected finalmaturity date

The payment date in January 2052

Collateral Fully amortizing and interest-only converting to amortizing Australian-dollar loans to prime-qualitySMSF borrowers, secured by first registered mortgages over Australian residential properties. Theloans mature no later than 18 months before the final maturity of the notes.

Structure type Prime residential mortgage-backed pass-through securities

Issuer and trustee Perpetual Corporate Trust Ltd. as trustee for Triton SMSF Bond Trust 2020 Series 1

Loan originator Columbus Capital Pty Ltd.

Trust manager andservicer

Columbus Capital Pty Ltd.

Presale:

Triton SMSF Bond Trust 2020 Series 1July 6, 2020

PRIMARY CREDIT ANALYST

Leslie J Wong

Melbourne

+ (61) 3-9631-2932

[email protected]

SECONDARY CONTACTS

Alisha Treacy

Melbourne

(61) 3-9631-2182

[email protected]

Calvin C Leong

Melbourne

(61) 3-9631-2142

[email protected]

www.standardandpoors.com July 6, 2020 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

2473388

mailto: [email protected]






Profile (cont.)

Stand-by servicer Perpetual Corporate Trust Ltd.

Security trustee P.T. Ltd.

Custodian Perpetual Corporate Trust Ltd. and Permanent Custodians Ltd.

Primary creditenhancement

Note subordination, excess spread, if any, and a loss reserve funded by excess spread will be used tooffset losses in priority to any distribution to the beneficiary.

Supporting Ratings

Liquidity facility provider National Australia Bank Ltd.

Interest-rate swap provider National Australia Bank Ltd.

Bank account provider National Australia Bank Ltd.

Loan Pool Statistics As Of June 15, 2020

Total number of loans 973

Total value of loans (A$) 249,896,987

Current maximum loan size (A$) 1,214,500

Average loan size (A$) 256,831

Maximum current loan-to-value (LTV) ratio (%) 80.0

Weighted-average current LTV ratio (%) 62.2

Weighted-average loan seasoning (months) 8.7

Note: All portfolio statistics are calculated on a consolidated borrower basis.

Rationale

The preliminary ratings assigned to the prime floating-rate residential mortgage-backedsecurities (RMBS) to be issued by Perpetual Corporate Trust Ltd. as trustee for Triton SMSF BondTrust 2020 Series 1 reflect the following factors.

The underlying collateral entirely comprises residential loans to self-managed super funds(SMSFs). This is the first rated Australian RMBS transaction with a portfolio of 100% SMSF loans.S&P Global Ratings does not see any additional risk from this concentration in borrower type.

The credit risk of the underlying collateral portfolio (discussed in more detail under "CreditAssessment") and the credit support provided to each class of notes are commensurate with theratings assigned. Credit support is provided by note subordination, and excess spread, if any. Ourassessment of credit risk takes into account the originator's underwriting standards and approvalprocess, and its servicing quality (discussed in more detail under "Origination And Servicing").

The rated notes can meet timely payment of interest and ultimate payment of principal under therating stresses. Key rating factors are the level of subordination provided, liquidity facility,principal draw function, and the loss reserve. Our analysis is on the basis that the notes are fullyredeemed via the principal waterfall mechanism under the transaction documents by their legalfinal maturity date, and we assume the notes are not called at or beyond the call-option date.



2473388

Presale: Triton SMSF Bond Trust 2020 Series 1

Our preliminary ratings also take into account the counterparty exposure to National AustraliaBank Ltd. (NAB) as bank account provider, liquidity facility provider, and interest-rate swapprovider.

We also have factored into our ratings the legal structure of the trust, which is established as aspecial-purpose entity and meets our criteria for insolvency remoteness. SMSFs are highlyregulated and the effects of any changes in law are not within the scope of our ratings.

Loss of income for borrowers in the coming months due to the effects of COVID-19 might putupward pressure on mortgage arrears over the longer term. We recently updated our outlookassumptions for Australian RMBS in response to changing macroeconomic conditions as a resultof the COVID-19 outbreak. The collateral pool at close for this transaction will not include anyloans where the borrower has applied for a COVID-19 hardship payment arrangement.Nevertheless, we undertook additional cash-flow sensitivity analysis to assess the rated notes'sensitivity to delays in borrower payments should some loans enter hardship arrangementsfollowing the closing date.

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of thecoronavirus pandemic. The consensus among health experts is that the pandemic may now be at,or near, its peak in some regions but will remain a threat until a vaccine or effective treatment iswidely available, which may not occur until the second half of 2021. We are using this assumptionin assessing the economic and credit implications associated with the pandemic (see our researchhere: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions andestimates accordingly.

Strengths And Weaknesses

Strengths

We have observed the following strengths in the transaction:

- For the class A1 and class A2 notes the subordination to be provided significantly exceeds theminimum credit support at the 'AAA (sf)' level.

- A relatively low weighted-average loan-to-value (LTV) ratio of 62.2%, where only 2.1% of theportfolio has an LTV ratio greater than 75%. The adjustment factors S&P Global Ratings appliesto credit-enhancement increase exponentially for loans with LTV ratios greater than 75%.

- That 98.7% of the loans are fully amortizing, despite all loans being to investors.

Weaknesses

Weaknesses identified with respect to the transaction are:

- The absence of a substantial track record on SMSF loans. Although Columbus's SMSFperformance to date has been strong, S&P Global Ratings has increased the credit supportlevels on SMSF loans to reflect the limited track record.

- The geographic concentration in the pool. Approximately 57.4% of the portfolio is located inQueensland and 25.5% of properties are located in 10 postcodes. S&P Global Ratings applies ahigher default frequency for exposures exceeding the limits defined in the archetypical pool tofactor in the effect of a localized economic downturn on default risk.



2473388


- Some 71.3% of the portfolio is seasoned by 12 months or less.

Notable Features

Class AB notes

If there are insufficient interest collections, and the stated amount of class AB note is less than itsinvested amount, then the class AB note will not have access to the loss reserve, principal drawmechanism, and the liquidity facility to support its timely interest payment. S&P Global Ratingshas taken this feature into account in its cash-flow analysis (see "Cash-Flow Analysis"). Thisfeature also applies to the class B, class C, class D, class E, and class F notes.

Class B, class C, class D, class E, and class F note margins

From the call-option date—the earlier of the payment date, which is on or after the payment datein October 2023, and the payment date on which the outstanding note balance is less than orequal to 20% of the initial balance—the margins on the class B, class C, class D, class E, and classF notes will step down and be paid on the stated amount of the notes as a senior interestcomponent. There is also a residual interest component that is subordinated in the interestwaterfall, and has no access to the liquidity support in the transaction. S&P Global Ratings'ratings on the class B, class C, class D, class E, and class F notes do not address the payment ofthe residual interest amount.

Although the transaction documents allow the class B, class C, class D, class E, and class F notes'senior interest to be paid on the stated amount of the notes, based on our analysis, we believe thatin a 'AA' environment with respect to the class B notes, an 'A' environment with respect to theclass C notes, a 'BBB' environment with respect to the class D notes, a 'BB' environment withrespect to the class E notes, and a 'B' environment with respect to the class F notes, the statedamount of class B, class C, class D, class E, and class F notes will always equal the notes'respective invested amounts. Therefore, we have modeled in our cash-flow analysis the paymentof the senior interest on the invested amount. Our cash-flow analysis shows that the notes'interest can be paid in full senior in the waterfall under the relevant stresses commensurate withthe rating on the notes.



2473388


Transaction Structure

The structure of the transaction is shown in chart 1.

Chart 1

We understand that transaction counsel will lodge the relevant financing statements on thePersonal Property Securities Register in connection with the security interest.

Note Terms And Conditions

Interest payments

The notes are floating-rate securities, paying a margin over the one-month bank bill swap rate, onthe invested amount of the notes. However, from the call-option date, the interest on the class B,class C, class D, class E, and class F notes will be payable based on their stated amounts (see"Notable Features: Class B, class C, class D, class E, and class F note margins").

If the notes are not called on the call date, then the margin on the class A1-AU, class A1-3Y, classA2, and class AB notes will step up by 0.50% and the margin on the class B, class C, class D, classE, and class F notes will step down.

S&P Global Ratings' ratings on all notes address the timely interest and ultimate principal



2473388


repayment on the notes. However, S&P Global Ratings' ratings on the class B, class C, class D,class E, and class F notes do not address the payment of the residual interest amount on the classB, class C, class D, class E, and class F notes.

The trustee can elect to call the notes in full at their invested amounts on or after the call-optiondate. The call-option date is the earlier of the payment date in October 2023 and the payment dateon which the stated amount of all notes is less than or equal to 20% of the initial balance of allnotes on the closing date.

Principal allocation

All classes of notes have a legal final maturity on the payment date in January 2052.

Principal collections—after application of principal draws, if necessary, to cover any incomeshortfalls or to fund redraws—will be passed through sequentially to all classes of notes.

The transaction can convert to a pro-rata payment structure if the step-down tests are met (see"Pro-rata paydown triggers"). Under the pro-rata payment, principal will be allocated on apro-rata basis to all classes of notes based on their documented note principal allocationcalculations except for the class A1-AU notes, class A1-3Y notes and the class G notes.

Under the pro-rata payment structure, the class A1-AU notes will receive the class A1-3Y principalallocation. The class A1-3Y notes will only receive principal payments once the aggregate principaloutstanding of the class A1-AU notes is reduced to zero.

Furthermore, the class G notes will not receive principal payments until all rated notes have beenrepaid. Any principal allocated to the class G notes under pro-rata payment will be allocated to theclass F notes until repaid in full, followed by the class E notes, class D notes, class C notes, class Bnotes, class AB notes, class A2 notes, class A1-AU notes, class A1-3Y notes, then the class Gnotes.

The transaction features a reverse turbo mechanism that applies only after the call-option datewhere available excess spread less the applicable rate for tax will be applied to pay down therated notes. The manager will maintain a call-option date amortization ledger for the collectionaccount, and record any amounts credited to and debited from the ledger. We have not givencredit to the reverse turbo mechanism in our analysis because the trapping of excess spread forthis purpose is subordinated in the interest waterfall.

Given the pass-through nature of the notes, the actual date on which the principal amount of thenotes will be fully repaid will be determined by the actual prepayment rate experience on the loanportfolio. As a result, the risk of mortgage prepayments is borne by the noteholders.

Loss allocation

Charge-offs will be first allocated to the loss reserve if funded, call-option date amortizationledger, then to the class G notes until their outstanding balance is reduced to zero, followed by theclass F, class E, class D, class C, class B, class AB, class A2, then pari passu to the class A1 notes.Under the transaction structure, any charge-offs are to be reimbursed in the reverse order,excluding the call-option date amortization ledger.



2473388


Pro rata pay down triggers

The triggers to allow pro rata pay down are:

- Payment is made at least two years after transaction close;

- Credit support provided to the class A1 notes from note subordination is at least 30.0%;

- During the preceding three collection periods, no more than 2% of mortgages is 90 days or morein arrears (excluding COVID-19 hardship loans);

- There are no unreimbursed carryover charge-offs in respect of any notes; and

- The payment date is not on or after the call-option date.

Rating-Transition Analysis

Scenario analysis: Property market value decline

S&P Global Ratings performed a scenario analysis to determine the potential impact on theratings at transaction close if the values of every security property decreased by 10%. We applieda haircut of 10% to the original property values and increased LTV ratios for this impact. Note thatthis scenario does not take into account potential increases or decreases in the security propertyvalue compared to its original value, and does not consider cash-flow analysis and, therefore, thepotential use of excess spread to cover losses. The implied credit assessments are set out in table2.

Table 1

Minimum Credit Support For Credit Losses And Implied Credit Assessments UnderThe Scenario

ClassMinimum credit support for credit

losses (%) Implied credit assessment

A1-AU 7.80 aaa

A1-3Y 7.80 aaa

A2 7.80 aaa

AB 7.80 aa-

B 5.44 a

C 3.39 bbb

D 1.96 bb

E 1.07 b

F 0.48 b-

Origination And Servicing

The underlying assets of the trust consist of prime residential mortgage loans to SMSFs that wereoriginated by Columbus, under the Origin program. Columbus purchased the Origin business,



2473388


along with the portfolio of loans associated with the business, in September 2012. In March 2014,Columbus began origination of new mortgages under the Origin program. In April 2017, Columbuscommenced origination of loans to SMSFs. To date, Columbus has originated more than A$700million of loans to SMSFs.

We assess the quality of the origination, underwriting, and servicing of the loans as part of ourcredit analysis because it can affect the performance of the portfolio.

We have taken into account the role of mortgage managers as introducers on over half of the loansin the portfolio, as well as the centralized approval processes, regular hindsight reviews and theminimal level of exceptions to credit policy.

In underwriting loans to SMSFs, Columbus requires all SMSF beneficiaries to be personalguarantors and must meet all relevant legislative and associated regulatory requirements.Columbus's calculation of SMSF borrower repayment capacity takes into account incomeavailable directly to the SMSF, such as super guarantee contributions and rental income from theproperty. We have taken into account the interest-rate buffers and haircuts Columbus applies sowe can assess the consistency and quality of Columbus's debt-serviceability assessment in ourcredit analysis.

In determining the market value decline assumption we have factored in the type of valuation thatwas obtained when the loans were originated. All loans in this portfolio had a full valuationconducted at origination by a registered valuer. We believe this provides consistency and improvesthe quality of the valuation.

Columbus will perform the servicing role. This includes arrears management and loaninterest-rate management. Columbus's Manila operations handle tasks such as outbound calls toborrowers who are between zero and 60 days in arrears (i.e., missed direct debits), and inboundactivities including the calculation of commissions to mortgage managers. All credit decisions,write-offs, and releases are performed by the Columbus servicing team, which is based in Sydney.

Columbus manages and monitors arrears on a missed-payments basis, but reports arrears withreference to the scheduled balance of the loan. Under the scheduled balance method, a mortgageloan is only deemed delinquent when the actual loan balance exceeds the scheduled balance.

Perpetual Corporate Trust Ltd. provides standby servicing to the loan pool, should Columbus bereplaced as servicer.



2473388


Columbus has issued 12 publicly rated Australian prime RMBS deals since 2008. Chart 2illustrates Columbus's prime issuance history. In 2008, Columbus completed an issuance underNautilus Trust No.1 Series 2008-1. This transaction was reissued in 2011 after a restructure.

Chart 2



2473388


Chart 3 compares the level of delinquencies on Columbus's securitized prime mortgage loans andthe Standard & Poor's Performance Index (SPIN) for Australian prime mortgages. The chartincludes the arrears data of loans originated by Columbus before it acquired the Origin loanportfolio in September 2012--under the Nautilus Trust No.1 Series 2008-1, including itsreissuance in 2011--and after the acquisition of the Origin loan portfolio, which reflects the TritonTrust No.2 Bond Series 2013-1 and 2014-1 transactions.

The arrears performance before March 2013 reflects the Nautilus Trust No.1 Series 2008-1transaction and its reissuance. The documentation was not fully verified for about 50% of theloans in this pool. The spike in arrears in 2012 and 2013 partly reflects the small remaining poolbalance of this portfolio before the Triton Trust No.2 Bond Series 2013-1 issuance. Nautilus TrustNo.1 Series 2008-1 was redeemed in 2015.

Chart 4 compares the level of delinquencies on Columbus total SMSF portfolio and the SPIN forAustralian Prime mortgages.

Columbus SMSF origination commenced in April 2017. Since 2018, Columbus has included someSMSF loans in its securitized portfolios; however, the maximum exposure to SMSF loans in thesepools has not been more than 15.7%. The performance of Columbus SMSF loans has been strongto date, with no SMSF loans having been delinquent for more than 60 days and no SMSF loanshaving been foreclosed on.

Chart 3



2473388


Chart 4



2473388


Chart 5 shows the annualized prepayment speeds of the Columbus securitized prime loanportfolios, and Columbus total SMSF portfolio against Standard & Poor's Prepayment Index (SPPI),which is a measure of prepayment rates for Australian prime RMBS. The prepayment speedsencompass the unscheduled principal payments on the mortgage loans. The prepayment historyalso reflects the composition of Columbus's portfolio. The prepayment rate of Columbus's SMSFportfolio is significantly lower than its securitized portfolio and SPPI.

Chart 5

Credit Assessment

The portfolio consists entirely of full-documentation prime residential mortgage loans. This is aclosed pool, which means no additional loans will be assigned to the trust after the closing date.

We have assessed the credit quality of the collateral to determine the minimum credit supportlevels for this transaction. We consider weaknesses in the credit quality of the portfolio to includethe geographic concentration to Queensland and a large proportion of properties in the portfoliolocated in 10 postcodes (see table 5). Our credit support calculation takes into account thatborrowers can redraw prepaid principal under the mortgage loans.

While all loans in the portfolio have been advanced to SMSFs, S&P Global Ratings does not seeany additional risk from this concentration. However, in the absence of a substantial track recordand performance data on SMSF loans, S&P Global Ratings has applied an additional adjustment



2473388


in its credit-support calculation. Although SMSF loans are limited-recourse lending, the risk ofthis affecting borrowers' payment behavior is somewhat mitigated by features such as personalguarantees being provided by SMSF members for every loan to an SMSF in the asset pool. Astrong, well-documented personal guarantee contains features that create the full-recoursecharacteristics that are typically exhibited in a first-registered full-recourse residential mortgage.The SMSF loans by Columbus Capital have fairly standard terms, conditions, and loancharacteristics.

The collateral pool at close for this transaction will not include any loans where the borrower hasapplied for a COVID-19 hardship payment arrangement.

In calculating the minimum credit support levels, we compare the characteristics of the portfoliowith an archetypical pool and apply multiples as a way to increase or decrease credit supportlevels to reflect higher or lower credit risk compared with the characteristics of the archetypicalpool. The credit support levels comprise two components: default frequency and loss severity. Asummary of this calculation is shown in table 2. Table 3 lists the five main default frequencycharacteristics that have deviated from the archetypical pool.

Table 2

Summary Credit Assessment – Total Pool

AAA AA A BBB BB B

(a) Default frequency (%) 15.51 11.83 8.10 5.44 3.72 2.22

(b) Loss severity (%) 30.91 27.49 24.16 19.61 14.09 9.21

(c) Credit support required (a) x (b) (%) 4.79 3.25 1.96 1.07 0.52 0.35

Assumptions

Market value decline (%) 45.0 43.0 41.0 38.0 34.0 30.0

Weighted-average recovery period (months) 13.4 13.4 13.4 13.4 13.4 13.4

Interest rate through recovery period (%) 10.71 10.21 9.71 9.21 8.71 8.21

Table 3

Rating Multiples

Criteria Default frequency multiple (x)

Loan-to-value ratio 0.697

Loan term 0.908

SMSF 1.250

Location (nonmetro) 1.058

Borrower employment 1.049

Loan Pool Profile

The pool as of June 15, 2020, is summarized in table 4. All portfolio statistics are calculated on aconsolidated borrower basis.



2473388


Table 4

Loan Pool Characteristics

Value of loans (%)

Current loan size distribution (A$)

Less than or equal to 100,000 0.8

Greater than 100,000 and less than or equal to 200,000 15.5





Greater than 800,000 and less than or equal to 1,000,000 0.0

Greater than 1,000,000 and less than or equal to 1,500,000 0.9

Greater than 1,500,000 0.0

Current loan-to-value ratio distribution (%)

Less than or equal to 50 12.0

Greater than 50 and less than or equal to 60 21.5





Geographic distribution (by state)

New South Wales and Australian Capital Territory 14.1

Victoria 20.5

Queensland 57.4

Western Australia 1.1

South Australia 3.8

Tasmania and Northern Territory 3.0

Geographic distribution (metro/nonmetro)

Inner city 1.6

Metropolitan 77.4

Nonmetropolitan 21.0

Seasoning

Less than or equal to six months 39.2

Six months – one year 32.1

One to two years 27.6

Two to three years 1.1

Three to four years 0.0

Four to five years 0.0

Greater than five years 0.0



2473388


Table 4

Loan Pool Characteristics (cont.)

Value of loans (%)

Principal amortization

Fully amortizing 98.7

Interest-only for up to five years, reverting to fully amortizing 1.3

Ownership type

Owner-occupier 0.0

Investor 0.0

SMSF 100.0

Borrower residency

Australian resident 100.0

Nonresident 0.0

Employment status

P-A-Y-E (full or part time) 88.4

Self-employed 11.6

Loan documentation

Full documentation 100.0

Mortgage insurers

Uninsured 100.0

Loan purpose

Purchase (new or existing) 92.8

Refinance 7.2

Current delinquency

Less than or equal to 30 days in arrears 100.0

Note: As of June 15, 2020, there were no loans with COVID-19-related hardship arrangements in the pool. Lenders are not required to reportloans under COVID-19 arrangements as being in arrears during the defined mortgage-relief period. S&P Global expects lenders will report onthis measure separately.

The 10 top postcode concentrations for the collateral pool are set out in table 5.

Table 5

Top 10 Postcode Concentrations

Rank Postcode Exposure (%)

1 4207 4.57

2 4301 3.02

3 4509 2.89

4 4503 2.88

5 4300 2.44

6 4505 2.30

7 4125 1.97



2473388


Table 5

Top 10 PostcodeConcentrations (cont.)

Rank Postcode Exposure (%)

8 4077 1.91

9 4506 1.80

10 4164 1.69

Cash-Flow Analysis

Our cash-flow analysis shows that the transaction has sufficient income to support timelypayment of interest and ultimate repayment of principal to the rated notes under various stressscenarios commensurate with the ratings assigned.

Liquidity assessment

If there are insufficient interest collections, then liquidity support to meet senior fees, expenses,and interest on the notes, excluding the class G notes, is first provided through the loss reserve(discussed in more detail under "Loss reserve"). Principal draws will be available if interestcollections and the loss reserve are insufficient. In addition, a liquidity facility provided by NAB isavailable if there is a further shortfall.

The liquidity facility will represent 1.0% of the initial aggregate amount of all the notes. This willamortize with the note balance, subject to a floor of 0.10% of the initial note balance.

The loss reserve, principal draw mechanism, and liquidity facility will not be available to meetinterest shortfalls on the class AB, class B, class C, class D, class E, and class F notes if at anytime the stated amount of that note is less than its invested amount.

Loss reserve

There will be a nonamortizing loss reserve that traps available excess spread, subject to meetingcertain conditions. The loss reserve balance initially will be nil. From the closing date, all availableexcess spread will be trapped while the conditions are met up to a maximum cap of A$2,500,000.The loss reserve can be used to cover any shortfall of the trust's required payments on thatpayment date, followed by current period losses and unreimbursed charge-offs on the notes.

Extraordinary expense reserve

A reserve to cover extraordinary expenses will be funded through excess spread when available,up to a limit of A$150,000. The balance of this reserve will have a zero balance at close. We havenot given credit to this reserve in our analysis because the trapping of excess spread for thispurpose is subordinated in the interest waterfall.

Interest-rate risk



2473388


The portfolio comprises 0.23% fixed-rate loans at transaction close. Variable-rate loans may beconverted to fixed rate after transaction close, provided the proportion of fixed-rate loans does notexceed 5% of the pool balance. The issuer will enter into a fixed-rate swap with NAB to hedge theinterest-rate risk between the fixed-rate mortgage loans and the floating-rate obligations of thetrust. The swap agreement includes downgrade language that requires the posting of collateral orthe replacement of the swap counterparty or other remedy, consistent with our "CounterpartyRisk Framework Methodology And Assumptions" criteria, published on March 8, 2019, should therating of the counterparty fall below the applicable rating.

Cash-flow modeling assumptions

Based on our cash-flow analysis and stresses, the notes can make full interest and principalpayment by the final legal maturity date. Our cash-flow analysis allows us to test the capacity ofthe transaction's cash flow to support the rated notes under various stress scenarios, repayprincipal on the notes by their respective legal final maturity dates, and to determine thesufficiency of the liquidity support, which includes a liquidity facility, the use of principal draws,and the loss reserve available.

The key rating stresses and assumptions modeled at each rating level are:

- Analyzing and modeling the structure of the transaction to include all note balances andmargins, trust expenses, liquidity mechanisms within the structure, the priority of payments forboth income and principal, and loss mechanism, as described in the transaction documents.

- Default frequency and loss severity commensurate with the ratings on the notes.

- Timing of defaults. S&P Global Ratings assumes most defaults would likely occur within thefirst few years of the transaction. We have run three default curve assumptions: a front-enddefault curve whereby most of the expected losses occur earlier in the first few years of thetransaction's life, a base-case default curve, and a back-end default curve whereby lossesoccur later within the first five years of the transaction's life (see table 6).

- Time to recovery of sale proceeds from defaulted loans. A key driver in the cash-flow model isthe time it takes to foreclose and recover monies from the defaulted borrower. We haveassumed a recovery period of 14 months.

- Loan prepayment rates. S&P Global Ratings has considered various prepayment rates specificto Columbus SMSF loans when modeling the cash flows of the underlying mortgage loans toassess the effect on the ability of the trust to meet its obligations. S&P Global Ratings hasmodeled a low, constant, and high prepayment rate, taking into account the lower prepaymentrates observed for Columbus SMSF loans compared with standard prime RMBS. Theprepayment stresses assumed are shown in table 7. These rates include voluntary andinvoluntary (default) prepayments.

- Modeling the cash flows of the assets based on the characteristics of the underlying collateralpool, and the margin set on all loans.

- Interest rates, by varying the bank-bill swap rate curves at each rating level.

- An assumed servicer fee of 0.35%, should it be necessary for Columbus to be replaced asservicer.

- An assumed extraordinary expense fee of 0.25% because the extraordinary expense reservewill have a zero balance at close.

- The sequential and pro-rata principal payment structure of the notes.



2473388


- The margin on the class B, class C, class D, class E, and class F notes will step down if the notesare not repaid on the call-option date (refer to "Notable Features: Class B, class C, class D,class E, and class F, note margins").

- COVID-19 liquidity stress that assumes a portion of interest and principal collections aredelayed for the first six months and are recovered in the following 12 months. This scenariotests the robustness of the rated notes to potential granting of payment holidays or reducedpayments under COVID-19 hardship arrangements following the closing date.

Table 6

Assumed Default Curves

Month Front-end default curve (%) Back-end default curve (%) Base-case default curve (%)

6 10 - 10

12 25 5 15

18 - 15 -

24 30 25 25

36 20 25 25

48 10 15 15

60 5 10 10

72 - 5 -

Table 7

Assumed Constant Prepayment Rates (CPR)

Transaction seasoning Low CPR scenario (% per year) Constant CPR scenario (% per year) High CPR (% per year)

Up to month 12 0 8 10

Month 13 to month 18 0 8 15

Month 19 to month 36 0 8 25

After month 36 0 8 30

Note: Total CPR shown is inclusive of voluntary and involuntary (defaults) prepayments.

Legal And Counterparty Risks

In our view, the issuer has features consistent with our criteria on special-purpose entities,including the restriction on objects and powers, debt limitations, independence, andseparateness.

The transaction will have counterparty exposure to NAB as the interest-rate swap provider,liquidity facility provider, and bank account provider. The documentation of these roles requiresreplacement and posting of collateral if the rating on these entities falls below certain levels;these mechanisms are consistent with S&P Global Ratings' counterparty criteria.



2473388


Issuer Disclosure

The issuer has not informed S&P Global Ratings Australia Pty Ltd. whether the issuer is publicallydisclosing all relevant information about the structured finance instruments that are subject tothis rating report or whether relevant information remains nonpublic.

Related Criteria

- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates InStructured Finance, Oct. 18, 2019

- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology AndAssumptions, 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 InStructured Finance Transactions, Oct. 9, 2014

- Criteria - Structured Finance - RMBS: Assumptions: Australian RMBS Postcode ClassificationAssumptions, July 10, 2013

- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 2013

- General Criteria: Global Investment Criteria For Temporary Investments In TransactionAccounts, May 31, 2012

- Criteria | Structured Finance | RMBS: Australian RMBS Rating Methodology And Assumptions,Sept. 1, 2011

- Criteria | Structured Finance | RMBS: Methodology And Assumptions For Analyzing The CashFlow And Payment Structures Of Australian And New Zealand RMBS, June 2, 2010

- General Criteria: Methodology: Credit Stability Criteria, May 3, 2010

- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28,2009

Related Research

- How Will COVID-19 Affect Australian RMBS Ratings? May 25, 2020

- 2020 Outlook Assumptions For The Australian Residential Mortgage Market, May 19, 2020

- An Overview Of Australia's Housing Market And Residential Mortgage-Backed Securities, Nov.14, 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 FiveMacroeconomic Factors, Dec. 16, 2016

- RMBS Performance Watch: Australia, published quarterly



2473388


- RMBS Arrears Statistics: Australia, published monthly

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the CorporationsAct 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to anyperson in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).



2473388


S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors.S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributedthrough other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available atwww.standardandpoors.com/usratingsfees.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respectiveactivities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has establishedpolicies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed andnot statements of fact. S&P's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase,hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation toupdate the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment andexperience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not actas a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable,S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-relatedpublications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limitedto, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certainregulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Partiesdisclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damagealleged to have been suffered on account thereof.

Copyright © 2020 Standard & Poor's Financial Services LLC. All rights reserved.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any partthereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrievalsystem, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not beused for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees oragents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are notresponsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or forthe security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESSOR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ORUSE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THECONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct,indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, withoutlimitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advisedof the possibility of such damages.

Standard & Poor’s | Research | July 6, 2020 21

2473388


triton smsf bond trust 2020 series 1 · 2020. 7. 7. · smsf borrowers, secured by first registered...

Documents