(The following statement was released by the rating agency) Fitch Ratings-Sydney-January 18: Fitch Ratings has assigned ratings to Westpac New Zealand Limited's (WNZL, AA-/Stable/F1+) Series 2019-1 EUR500 million fixed-rate mortgage covered bonds due January 2024. The fixed-rate bond benefits from a 12-month extendable maturity and is issued through Westpac Securities NZ Limited (WSNZL), London Branch, a guaranteed issuing vehicle WNZL uses for international funding. This issuance brings the programme's total outstanding covered bond issuance to about NZD6 billion, all of which is issued by WSNZL. These covered bonds are guaranteed by Westpac NZ Covered Bond Limited, a bankruptcy-remote SPVestablished under the laws of New Zealand. KEY RATING DRIVERS The 'AAA' covered bond rating is based on WNZL's Long-Term Issuer Default Rating (IDR) of 'AA-', an IDR uplift of zero notches, a payment continuity uplift of six notches, a recovery uplift (RU) of one notch and the asset percentage (AP) of 11.1% used in the programme's asset coverage test. This AP is relied upon by Fitch in its analysis and is equal to Fitch's 'AAA' breakeven AP. Fitch's breakeven AP supports a 'AA+' tested rating on a probability-of-default basis and a one-notch RU to 'AAA'. The Stable Outlook on the rating reflects a four-notch buffer against a downgrade of the bank's IDR. The 'AAA' breakeven AP of 90.0% corresponds to a breakeven overcollateralisation (OC) of 11.1% and is equivalent to the programme's maximum contractual AP. The 'AAA' breakeven OC is driven by an ALM loss component of 5.5%, which corresponds to the sum of the cash flow valuation and asset disposal loss, the two components replaced by Fitch's ALM loss under the agency's Covered Bonds Rating Criteria published in August 2018. The ALM loss component reflects the modelled asset and liability mismatches. The stressed weighted-average residual life of the cover assets calculated by Fitch was 7.4 years, taking into account prepayments, and the liabilities was 3.5 years, inclusive of the bond extension period. The credit loss component contributes 3.6% to the breakeven OC for the rating and reflects the credit quality of the underlying cover pool. RATING SENSITIVITIES Westpac New Zealand Limited's covered bonds would be vulnerable to downgrade if the bank's Long-Term Issuer Default Rating (IDR) falls below 'BBB+' or if the total number of notches represented by the IDR uplift, payment continuity uplift and recovery uplift is reduced to two or less. If the nominal AP rises to the maximum 90.0% contractual AP stipulated in the programme documents, there will be no impact to the rating of the covered bonds. Fitch's 'AAA' breakeven AP for the covered bond rating will be affected, among other factors, by the profile of the cover assets relative to the outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore, it cannot be assumed that the 'AAA' breakeven AP, which maintains the covered bond rating, will remain stable over time. The source of information used to assess these ratings was WNZL. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public. Westpac Securities NZ Limited ----senior secured, Mortgage Covered Bonds, Mortgage Covered Bonds; Long Term Rating; New Rating; AAA; RO:Sta Contacts: Primary Rating Analyst Sambit Agasti, Associate Director +61 2 8256 0337 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Secondary Rating Analyst Jimmy Tanzil, Analyst +61 2 8256 0305 Committee Chairperson Claire Heaton, Senior Director +61 2 8256 0361
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