Johannesburg, 1 November 2018 — Global Credit Ratings (“GCR”) has accorded an indicative, public long-term credit rating of ‘AAA(ZA)(sf)’ with a ‘Stable’ outlook to the following Class A Notes to be issued by Compass Securitisation (RF) Limited (“Compass” or the “Issuer”) in November 2018:
ZAR110m, Class A5 Notes, stock code: CSA05U.
Concurrently, GCR affirmed the final, public long-term credit rating of ‘AAA(ZA)(sf)’ with a ‘Stable’ outlook accorded to the following Class A Notes issued by the Compass:
ZAR240m, Class A4 Notes, stock code: CSA04U, interest at 3M Jibar + 2.2%, final maturity date of 6 June 2027.
The indicative and final, public credit ratings accorded to the Class A5 and Class A4 Notes relate to timely payment of interest and ultimate payment of principal by the Final Maturity Date of the Notes (in a Pre-Enforcement – Amortisation scenario). The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
Compass is a ZAR1bn Equipment Receivables Backed Note Programme established in 2014. The Issuer issued an aggregate of R240m in Class A4 Notes and R103m in subordinated, unrated Class D4 Notes in June 2017 with the proceeds of the Notes issuance used to refinance existing notes which came to maturity in June 2017. The Issuer intends to issue an additional R110m in Class A5 Notes and R47m in subordinated, unrated Class D5 Notes. The proceeds from the issuance of the new Notes will be utilised to purchase additional equipment rental leases (and associated equipment) originated by Mercantile Rental Finance (Pty) Ltd (“MRF”). The Issuer may continue to purchase additional leases during the revolving period using the proceeds from principal collections on the equipment leases in the portfolio, as long as no Amortisation Event has occurred and is continuing. GCR reviewed the Transaction Documents in light of its updated Global Master Structured Finance Rating Criteria, as well as its Global Consumer Asset-Backed Securitisation (“ABS”) Rating Criteria, both published in September 2018. It was noted that certain provisions in the Transaction Documents were not in line with GCR’s updated criteria, however, the Issuer has undertaken to GCR that it will amend the documentation within a limited timeframe. GCR received updated historical information in respect of the Originator’s cumulative static defaults and recoveries, prepayments and an updated pool cut as at 31 August 2018, among others. The historical data was analysed in light of the updated methodologies as mentioned above, which incorporate country specific stress multiples, among other changes to the cash flow model. The changes to the cash flow model are detailed in a research report also published by GCR in September 2018.
The claims of each Class of Notes shall be subordinated to higher ranking Classes of Notes and certain other secured creditors in accordance with the Priority of Payments. In this regard, the Class D Notes will be subordinated to the Class A Notes. The credit enhancement available to the Class A4 Notes via subordination will be maintained at 30%, owing to the bullet maturity profile of the Notes. For more information, please refer to the Compass Securitisation (RF) Limited Pre-funding Report, published in November 2018.
|Structured Finance Analyst|
|+27 11 784 1771|
|Sector Head: Structured Finance Ratings|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Sep’18;
Global Consumer Asset Backed Securitisation Rating Criteria – Sep’18;
Global Credit Ratings Asset Backed Securities Cash Flow Model Report – Sep’18;
Compass Securitisation (RF) Limited New Issuance Report – Jun’17; and
Compass Securitisation (RF) Limited Surveillance Report – Jun’18.
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: http://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: http://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT http://GLOBALRATINGS.NET.
|Credit||A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Creditor||A credit provider that is owed debt obligations by a debtor.|
|Default||A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Lease||Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Portfolio Criteria||Limitations imposed on the type and quality of assets that can be sold by the Originator / Servicer into the Securitisation vehicle which ensure the transaction will track the performance of historical data analysed as closely as possible.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Receivables||General term for economic benefit derived from an asset.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Refinance||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Rent||Payment from a lessee to the lessor for the temporary use of an asset.|
|Repayment||Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.|
|Secured Creditor||A creditor that has specific assets pledged as collateral that will receive the proceeds in the event of default.|
|Securities||Various instruments used in the capital market to raise funds.|
|Securitisation||Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.|
|Servicer||A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Timely Payment||The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.|
|Transaction||A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
MRF and the Issuer participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The rating above was solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the rating.
The credit rating has been disclosed to MRF, the Issuer and the Arranger.
The information received from MRF and other reliable third parties to accord the credit rating includes:
- Static loss and recovery data for the period between April 2011 and March 2018;
- Issuer Securitisation reports for the period December 2015 to and 31 August 2018;
- Prepayment data for the period April 2011 to March 2018;
- Daily collections history for June 2018 and July 2018;
- Pool cut of the Issuer’s portfolio as at 31 August 2018;
- Proposed new Capital Structure of the Issuer;
- Draft Applicable Pricing Supplements for the Class A5 and Class D5 Notes;
- Draft General Amendment Agreement;
- Estimated annual expense budget;
- Deloitte pool audit report.