AIMS 2004-1 Trust, AIMS 2005-1 Trust, And AIMS 2007-1 Trust Class B Note Ratings Class A Notes Affirmed

Stocks and Financial Services Press Releases Thursday September 1, 2016 08:49
MELBOURNE--1 Sep--S&P Global Ratings

MELBOURNE (S&P Global Ratings) Sept. 1, 2016--S&P Global Ratings today lowered its ratings to 'A- (sf)' from 'AA- (sf)' on the class B notes issued by Perpetual Trustee Co. Ltd. as trustee of AIMS 2004-1 Trust, AIMS 2005-1 Trust, and AIMS 2007-1 Trust. At the same time, we affirmed our 'AAA (sf)' ratings on the AIMS 2005-1 Trust and AIMS 2007-1 Trust class A notes (see list).

The lowered ratings on the class B notes reflect:

The small and concentrated nature of the pools. As of July 31, 2016, the total loan balances are approximately A$14.6 million, A$18.1 million, and A$19.8 million of AIMS 2004-1 Trust, AIMS 2005-1 Trust, and AIMS 2007-1 Trust, respectively. The number of loans remaining in each trust is 235, 208, and 194 loans, respectively. Our criteria for Australian residential mortgage-backed securities consider an archetypical pool to contain at least 250 consolidated mortgage loans.

The potential for tail-end risks materializing increases as the pool shrinks. The class B notes are more susceptible to tail-end risks than comparable larger pools. This is magnified by the lack of hard credit support provided to class B notes, which means they are reliant on available excess spread and lenders' mortgage insurance. The notes are more sensitive to the timing and amount of losses, in addition to other risk factors associated with a concentrated asset pool and the ensuing tail-end risk.

The top 10 borrowers make up 22.8%, 18.6%, and 19.7% of the pool balance of AIMS 2004-1 Trust, AIMS 2005-1 Trust, and AIMS 2007-1 Trust, respectively. We have assessed pool concentrations by sizing an alternate loss scenario for the pool. Under this scenario, the top 10 loans at the 'AAA' rating level and top six loans at the 'A' rating level default and are recovered upon. The loss severity for each loan is the higher of 50%, the loan's loss severity, and the pool's weighted-average loss severity. The expected loss for the pool is the higher of that number, and the number sized applying our "Australian RMBS Rating Methodology And Assumptions" criteria, published Sept. 1, 2011. This approach is consistent with the "U.S. RMBS Surveillance Credit And Cash Flow Analysis For Pre-2009 Originations" criteria, published March 2, 2016.

Over the longer term, there is potential for yield strain to arise in these transactions. There is a documented cash-flow servicing fee floor of A$165,000 per annum shared between the existing AIMS trusts, and as the pools become smaller, this floor will become a larger proportion of expenses of the trusts. This could create yield strains in the tail end of the transaction.

The affirmation of our ratings on the class A notes reflects:

Our view of the credit risk of the underlying collateral portfolio, which consists of loans to prime-quality borrowers. The portfolios are seasoned by more than 120 months and have a weighted-average current loan-to-value ratio of less than 61% across the three pools.

Net losses before LMI, to date, have been low at 0.14%, 0.47%, and 0.91% of the original note balance of AIMS 2004-1 Trust, AIMS 2005-1 Trust, and AIMS 2007-1 Trust, respectively. There has been some volatility in arrears, mainly due to an amortizing pool factor. The performance of the assets is within our expectations.

The amount of credit support provided to the class A notes exceeds the minimum amount assessed as commensurate with a 'AAA (sf)' rating.

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