Johannesburg, 4 September 2015 — Global Credit Ratings (‘GCR’) has extended the expiry date of the indicative, public short term credit rating accorded of ‘A1-(ZA)(sf)’ to the following Notes:
Concurrently, GCR has extended the expiry date of the indicative, public long term credit rating of ‘A(ZA)(sf)’ with a Stable Outlook to the following Notes:
Furthermore, GCR has extended the expiry date of the indicative, public long term credit rating of ‘BBB(ZA)(sf)’ with a Stable Outlook to the following Notes:
The ratings of the R57m Class A1 Notes; R85m Class A2 Notes and R46m Class B Notes were initially set to expire on 7 September 2015. Real People (Pty) Ltd (Acting as the Arranger) requested the abovementioned ratings to be extended from 7 September 2015 to 30 September 2015 as a result of the listing and debt placing process.
The Class A1 Notes, Class A2 Notes (collectively the Class A Notes) and the Class B Notes are collectively referred to as the Senior Notes.
The Transaction is a new securitisation of education debtors, rescheduled and previously non-performing debt agreements (‘Sold Claims’) sold by the Seller to the Issuer. The debts (unsecured) were non-performing that were either: acquired from third parties; educational loans originated from the Aspire Group operations, loans originated from the Real People Home Finance business and General Purpose Loans originated through the discontinued Real People branch network.
The Transaction’s performance depends on the Servicer’s ability to collect on the rescheduled debt agreements. Real People Investment Holdings Ltd (‘RPIH’) currently has a Special Servicer Quality rating of ‘SQ2+(ZA)’ and the Servicer Agreement warrants for the replacement of RPIH with a Back-up Servicer in the event of a downgrade of the special servicer rating to below ‘SQ2-(ZA)’.
The purchase price of the underlying security was determined by applying a present value calculation of expected future receipts of all sold claims over a 60 months period, discounted at 2.6%.
Currently all receipts are collected directly into the Seller’s bank accounts held at each of the four major commercial banks: Standard Bank of South Africa Ltd, Absa Bank Ltd, Nedbank Ltd and First National Bank Ltd. The Servicer mitigates any commingling risk resulting from payments made via direct deposit through the bi-monthly transfer of all such deposits made into the Seller’s bank accounts into the Issuer’s Account Bank.
Upon the sale of the claims to the Issuer, all debit order payments will be transferred and paid directly into the Issuer’s Account Bank. Proceeds from the Subordinated Notes will fund the Cash Reserve at Transaction Closing, which will provide credit enhancement to the Transaction and be used to service the applicable Priority of Payments on each Payment Date. The Cash Reserve Required Amount will be an amount equal to 1% of the aggregate Principal Amount Outstanding of the Notes from time to time.
The Notes will be amortising from the first Payment Date following the order set out in the applicable Priority of Payments. No further Claims will be acquired.
The claims of the Class C Noteholders will be subordinate to the claims of the Class B Noteholders, and the claims of the Class B Noteholders will be subordinate to the claims of the Class A Noteholders. The Class A Notes will be time tranched into two Notes, a Class A1 and Class A2 Note. All cash flows allocated to Class A notes will first be used to pay down the A1 notes, thereafter the remaining cash allocated to the Class A Notes will be utilised to pay down the Class A2 Notes. This will be applicable in all the priority of payments defined in the transaction.
Structured Finance Analyst
+27 11 784 1771
+27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Feb ’15;
Real People Investment Holdings Ltd Servicer Quality Rating Report – Jul ’15;
Tailored stressed collections approach; and
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.
|Advance||A lending term, to transfer funds from the creditor to the debtor.|
|Agent||An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.|
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|Arranger||Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.|
|Asset||An item with economic value that an entity owns or controls.|
|Backup Servicer||A Servicer that would replace the existing Servicer in event of default or non-performance. An entity that is retained to stand ready to assume servicing responsibilities upon the termination of the initial servicer. A backup servicer is generally required to maintain a complete set of servicing records and systems for the related financial assets permitting it to assume servicing within a short period after termination of the servicer.|
|Bad Debt||A bad debt is an amount owed by a debtor that is unlikely to be paid when due, for example, to a company going into liquidation. This typically refers to default rather than delinquency.|
|Cash Flow||A financial term for monetary changes in operations, investing and financing activities.|
|Claim||A formal request or demand.|
|Conduit||A commercial lending entity that is established to purchase assets to securitise.|
|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 Enhancement||Limited protection to a transaction against losses arising from the assets. The credit enhancement can be either internal or external. Internal credit enhancement may include: Subordination; over-collateralisation; excess spread; security package; arrears reserve; reserve fund and hedging. External credit enhancement may include: Guarantees; Letters of Credit and hedging.|
|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.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).|
|Creditor||A credit provider that is owed debt obligations by a debtor.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Debt||An obligation to repay a sum of money.|
|Debtor||The party indebted or the person making repayments for its borrowings.|
|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.|
|Delinquency||When a receivable is overdue and not paid on its payment due date.|
|Downgrade||The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.|
|Enforceable||To make sure people do what is required by a law or rule et cetera.|
|Excess Spread||The net weighted average interest rate receivable on a pool of assets being greater than the weighted average interest rate payable for the debt securities.|
|Guarantee||An undertaking for performance of another’s obligations in event of default.|
|Hedging||A financial risk management process or function to take a market position to protect against an eventuality. Taking an offsetting position in addition to an existing position. The correlation between the existing and offsetting position is negative.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Junior||A security that has a lower repayment priority than senior securities.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|Liability||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Lien||A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.|
|Liquidation||The process by which a company is wound-up and its assets distributed to creditors. Liquidation proceedings are initiated either compulsorily or voluntarily by the company.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|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.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Obligation||The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.|
|Obligor||The party indebted or the person making repayments for its borrowings.|
|Offset||A right (Right of Offset) to set liabilities against assets in any dispute over claims.|
|Payment Date||The date on which the payment of a coupon is made.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Priority of Payments||In securitisation, the order in which the cash flows are allocated to the transaction parties.|
|Property||Movable or immovable asset.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|Ranking||A priority applied to obligations in order of seniority.|
|Receivables||General term for economic benefit derived from an asset.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|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.|
|Reserve Fund||A funded account available for use by a Special Purpose Vehicle for one or more specified purposes. A reserve fund is often used as a form of credit enhancement. Typically accumulated over time, through excess cash flows.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Security Package||Security offered to Noteholders for debt securities issued that should increase the recoveries in an event of default.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Servicer||A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.|
|Servicing||The calculation of interest and repayments, collection of repayments, advancing of loans, foreclose procedures, maintaining records and seeing that the proceeds of each loan are passed on to the respective party.|
|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.|
|Special Purpose Vehicle||An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.|
|Spread||The interest rate that is paid in addition to the reference rate for debt securities.|
|Stock Code||A unique code allocated to a publicly listed security.|
|Structured Finance||A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.|
|Subordination||The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches.|
|Trade Receivables||A legally enforceable claim for payment to a business by its customer or clients for goods supplied and or services rendered in execution of the customer’s order.|
|Tranche||In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.|
|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.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
|Weighted||The weight that a single obligation has in relation to the aggregated pool of obligations. For example, a single mortgage principal balance divided by the aggregated mortgage pool principal balance.|
|Weighted Average||An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities.|
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.
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/s above were solicited by the Arranger and Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The credit rating/s has been disclosed to the Arranger and Issuer and Issuer with no contestation of the rating.
The information received from the Arranger / Issuer:
- Historical collections data for the four loan books, each segmented into different ageing buckets based on the term of the loans;
- Draft Administration Agreement;
- Draft Common Terms Agreement;
- Draft Deed of Suretyship;
- Draft Guarantee;
- Draft Issuer Indemnity;
- Draft Pledge and Cession;
- Draft Sale of Claims Agreement;
- Draft Security Cession Agreement;
- Draft Servicing Agreement; and
- Draft Offering Circular.