Morningstar DBRS Confirms Credit Ratings on Latitude Australia Credit Card Loan Note Trust

DBRS Ratings Limited (Morningstar DBRS) confirmed its credit ratings on the Series 2019-1 notes (the Notes) issued by Latitude Australia Credit Card Loan Note Trust as follows:

Series 2019-1:
-- 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 credit ratings on the Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, charge-off rates, principal payment rates, and yield rates, as of the January 2024 payment date;
-- Current available credit enhancement to the Notes to cover the expected losses at their respective credit rating levels; and
-- No revolving termination events have occurred.

The transaction 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. The portfolio is serviced by Latitude. The Series 2019-1 is currently in its revolving period with an expected redemption date in September 2024 and legal final maturity date in September 2033.

PORTFOLIO PERFORMANCE
As of the January 2024 payment date, the monthly principal payment rate (MPPR) was 15.9%, averaging 13.4% since closing. The annualised gross charge-off rate was 3.6%, averaging 4.3% since closing. The annualised yield rate was 14.5%, averaging 13.9% since closing.

As of the January 2024 payment date, receivables that were two to three months in arrears represented 0.6% of the outstanding receivables balance, slightly up from 0.5% at the last annual review. Receivables more than three months in arrears represented 1.2% of the outstanding receivables balance, slightly up from 1.0% since the last annual review.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS maintained its expected MPPR, charge-off rate, and yield rate assumptions at 11.3%, 6.3%, and 12.5%, respectively.

CREDIT ENHANCEMENT
With respect to Series 2019-1, the Class A1 Notes benefit from credit enhancement of 32.5%. Credit enhancement 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. Credit enhancement consists of subordination of the junior notes and the series-specific originator variable funding note (VFN), and remains unchanged as the transactions remains in the revolving period.

The required retained principal ledgers of the series and the originator VFN required retained principal ledger provide liquidity support to the transaction. The series required retained principal ledger is funded to 1% of the outstanding Notes’ balance.

Westpac Banking Corporation (Westpac) acts as the account bank for the transaction. Based on Morningstar DBRS’ Long-Term Issuer Rating on Westpac of AA, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the Notes, as described in Morningstar DBRS ' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS’ credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in its proprietary cash flow engine.

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

The principal methodology applicable to the credit ratings is: Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148.

Other methodologies referenced in this transaction are listed at the end of this press release.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to Appendix C: The Impact of Sovereign Ratings on Other DBRS Morningstar Credit Ratings of the “Global Methodology for Rating Sovereign Governments” at: https://dbrs.morningstar.com/research/421590.

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

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

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

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

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

The last credit rating action on this transaction took place on 2 March 2023, when Morningstar DBRS confirmed its credit ratings on the Notes.

The lead analyst responsibilities for this transaction have been transferred to Jeffrey Cespon.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating:

-- Expected MPPR: 11.3%
-- Expected yield rate: 12.5%
-- Expected charge-off rate: 6.3%

-- Scenario 1: a 25% decrease in the expected MPPR
-- Scenario 2: a 25% decrease in the expected yield rate.
-- Scenario 3: a 25% increase in the expected charge-off rate.
-- Scenario 4: a 15% decrease in the expected yield rate, a 15% decrease in the expected MPPR, and a 15% increase in the expected charge-off rate.

Series 2019-1:
-- Class A1 Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf).
-- Class A2 Notes: AA (sf), AA (high) (sf), AA (high) (sf), AA (sf).
-- Class B Notes: A (high) (sf), AA (sf), AA (low) (sf), A (sf).
-- Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
-- Class D Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (sf).
-- Class E Notes: B (high) (sf), below B (sf), B (high) (sf), below B (sf).

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Jeffrey Cespon, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date:
-- Series 2019-1: 2 September 2019

DBRS Ratings Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425148
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023),
https://dbrs.morningstar.com/research/420573
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024),
https://dbrs.morningstar.com/research/427030

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

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].