DBRS Confirms Ratings of Latitude Australia Credit Card Loan Note Trust

DBRS Ratings Limited (DBRS) confirmed its ratings of the Series 2017-1, Series 2017-2 and Series 2018-1 Notes (the Notes) issued by Latitude Australia Credit Card Loan Note Trust (the Issuer) as follows:

Series 2017-1:
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)

Series 2017-2:
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)

Series 2018-1:
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)

The ratings of the Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of charge-off rates, principal payment rates, yield rates and delinquencies;
-- The ability to withstand stressed cashflow assumptions;
-- No purchase termination events have occurred;
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.

Latitude Australia Credit Card Loan Note Trust is a securitisation of credit card receivables related to credit agreements originated or acquired by Latitude Finance Australia (Latitude) to customers in Australia and assigned to the Latitude Australia Credit Card Master Trust. Each series is currently in its respective revolving period.

DBRS considers the Australian credit card market to share a similar consumer credit protection framework to that of European jurisdictions. Furthermore, the performance and operation of Latitude’s portfolio is deemed comparable with other originators where DBRS has assigned structured finance ratings. Therefore, DBRS utilises its “Master European Structured Finance Surveillance Methodology” and “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology when assessing these transactions.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of February 2019, the monthly principal payment rate (MPPR) was 13.4%, the annualised gross charge-off rate was 4.6% and the annualised yield rate was 14.6%. The MPPR, charge-off rate and yield rate have all exhibited stable trends. DBRS has elected to maintain its base case MPPR, charge-off rate and yield assumptions at 11.3%, 6.3% and 12.5%, respectively.

Delinquencies have been relatively low and stable. As of February 2019, loans that were two-to three-months in arrears represented 0.8% of the outstanding balance, unchanged from February 2018. Receivables 90+ days in arrears represented 1.4% of the outstanding balance, down from 1.5% in February 2018.

CREDIT ENHANCEMENT AND RESERVES
With respect to Series 2017-1 and Series 2017-2, the Class A1 Notes benefit from CE of 34.5%. With respect to Series 2018-1, the Class A1 Notes benefit from CE of 32.5%. CE to the Class A2, Class B, Class C, Class D and Class E Notes is 22.5%, 17.0%, 12.0%, 8.0% and 4.5%, respectively, for all three Series. CE consists of subordination of the junior notes and the series-specific Originator variable funding note (VFN) and has remained stable due to the revolving periods.

The Required Retained Principal Ledgers in respect of each series and the Originator VFN Required Retained Principal Ledger provide liquidity support to the transaction. The Series Required Retained Principal Ledgers are currently funded to AUD 21 million.

Westpac Banking Corporation (Westpac) acts as the account bank for the transaction. Based on the account bank reference rating of Westpac at AA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A1 Notes for each series, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Notes:
All figures are in Australian dollars unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

DBRS conducted a review of the Master Trust Deeds following an amendment in August 2018. A review of the other transaction legal documents was not conducted as these legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investor reports provided by Latitude Financial Services.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on Series 2017-1 and Series 2017-2 took place on 6 March 2018 when DBRS confirmed the ratings of the Class A1, Class A2, Class B, Class C, Class D and Class E Notes at AAA (sf), AAA (sf), AA (sf), A (sf), BBB (sf) and BB (sf), respectively. The last rating action on Series 2018-1 took place on 27 March 2018 when DBRS finalised the provisional ratings of the Class A1, Class A2, Class B, Class C, Class D and Class E Notes at AAA (sf), AAA (sf), AA (sf), A (sf), BBB (sf) and BB (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):
-- Base Case Charge-Off Rate: 6.3%
-- Base Case MPPR: 11.3%
-- Base Case Yield Rate: 12.5%

-- Scenario 1: 25% increase in charge-off, 25% decrease in yield
-- Scenario 2: 50% increase in charge-off, 50% decrease in yield
-- Scenario 3: 25% increase in charge-off, 25% decrease in MPPR
-- Scenario 4: 50% increase in charge-off, 50% decrease in MPPR
-- Scenario 5: 25% decrease in yield, 25% decrease in MPPR
-- Scenario 6: 50% decrease in yield, 50% decrease in MPPR

The expected ratings for the Notes under the six stressed scenarios are:

Series 2017-1:
-- Class A1: AAA (sf), AAA (sf), AAA (sf), A (high) (sf), AAA (sf), A (high) (sf)
-- Class A2: AA (sf), A (high) (sf), A (high) (sf), BBB (low) (sf), AA (low), BBB (low)
-- Class B: A (sf), BBB (sf), BBB (high) (sf), BB (sf), BBB (high) (sf), BB (low) (sf)
-- Class C: BBB (low) (sf), BB (sf), BBB (low) (sf), B (high) (sf), BB (high) (sf), B (sf)
-- Class D: BB (low) (sf), B (sf), BB (low) (sf), B (sf), BB (low) (sf), Below B (sf)
-- Class E: Below B (sf), Below B (sf), B (sf), Below B (sf), Below B (sf), Below B (sf)

Series 2017-2:
-- Class A1: AAA (sf), AAA (sf), AAA (sf), A (high) (sf), AAA (sf), AA (low) (sf)
-- Class A2: AA (sf), A (high) (sf), AA (low) (sf), BBB (low) (sf), AA (low) (sf), BBB (low) (sf)
-- Class B: A (sf), BBB (sf), BBB (high) (sf), BB (sf), BBB (high) (sf), BB (sf)
-- Class C: BBB (low) (sf), BB (sf), BBB (low) (sf), BB (low) (sf), BBB (low) (sf), B (sf)
-- Class D: BB (low), B (sf), BB (low) (sf), B (sf), BB (low) (sf), Below B (sf)
-- Class E: Below B (sf), Below B (sf), B (sf), Below B (sf), Below B (sf), Below B (sf),

Series 2018-1:
-- Class A1: AAA (sf), AAA (sf), AAA (sf), A (sf), AAA (sf), A (high) (sf)
-- Class A2: AA (sf), A (high) (sf), AA (low) (sf), BBB (low) (sf), AA (low) (sf), BBB (low) (sf)
-- Class B: A (sf), BBB (sf), BBB (high) (sf), BB (sf), BBB (high) (sf), BB (sf)
-- Class C: BBB (low) (sf), BB (sf), BBB (low) (sf), B (sf), BBB (low) (sf), BB (low) (sf)
-- Class D: BB (low), B (sf), BB (sf), B (sf), BB (low) (sf), Below B (sf)
-- Class E: B (sf), Below B (sf), B (sf), Below B (sf), B (sf), Below B (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Clare Wootton, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 6 March 2017 for Series 2017-1, 18 August 2017 for Series 2017-2, 6 March 2018 for Series 2018-1

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960.

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Interest Rate Stresses for European Structured Finance Transactions
-- Rating European Consumer and Commercial Asset-Backed Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.