Moody's Ratings assigns ratings to Bluestone Group's first non-conforming RMBS transaction for 2026
TL;DR
Moody's assigns provisional Aaa ratings to Bluestone Group's AUD 400 million non-conforming RMBS for 2026, with top-tier notes benefiting from 25% subordination and a liquidity facility. The portfolio includes high-risk factors like alternative documentation and self-employed borrowers, with key risks tied to collateral performance and economic conditions.
Tags
Moody's Investors Service has assigned provisional ratings to Bluestone Group's first non-conforming residential mortgage-backed securities (RMBS) transaction for 2026, covering AUD 400 million of debt securities issued by the Sapphire XXVI Series 2022-1 Trust. The Class A1S and A1L notes, totaling AUD 300 million, received provisional (P)Aaa (sf) ratings, while lower-tier classes (A2 through G2) remain unrated. The transaction is secured by a portfolio of Australian residential mortgages originated by Bluestone Group, with servicing provided by Bluestone Servicing Pty Limited.
The ratings reflect a 25% subordination level for the top-tier notes, exceeding the 15.3% MILAN credit enhancement benchmark, as well as a liquidity facility covering 2.0% of the note balance. Moody's noted a weighted-average loan-to-value ratio of 69.7% and a 62.4% share of loans under alternative documentation, which introduces credit risk. The portfolio also includes 62.9% self-employed borrowers and 17.0% with prior credit impairments, factors that could heighten default probabilities.
Moody's expects a 1.8% loss for the transaction under severe recession scenarios, supported by a 5.1% portfolio yield as of June 30, 2022, and structural features such as sequential principal distributions. Key risks include potential collateral performance shortfalls, servicing errors, or governance issues. The ratings are based on Moody's MILAN framework, which evaluates structural protections, collateral characteristics, and economic sensitivities.
Investors should note that these ratings are provisional and subject to change upon final issuance. The transaction's performance will remain closely tied to Australia's housing market and employment trends.
