Announcements

Evolution Future Flow Securities (RF) Limited – Final, public ratings accorded

Johannesburg, 12 October 2015 — Global Credit Ratings (‘GCR’) has accorded a final, public short term credit rating of ‘A1-(ZA)(sf)’ to the following Notes:

R57,000,000 Class A1 Notes, EFS0A1, interest at 3M JIBAR + 1.50%, due 28 October 2016

Concurrently, GCR has accorded a final, public long term credit rating of ‘A(ZA)(sf)’ with a Stable Outlook to the following Notes:

R83,000,000 Class A2 Notes, EFS0A2, interest at 3M JIBAR + 3.00%, due 28 October 2023

Furthermore, GCR has accorded a final, public long term credit rating of ‘BBB(ZA)(sf)’ with a Stable Outlook to the following Notes:

R46,000,000 Class B Notes, EFS00B, interest at 3M JIBAR + 5.50%, due 28 October 2023

The Transaction also has Class C Notes (EFS0CU) that are unrated.

The ratings accorded to the abovementioned Class A1, Class A2 and Class B Notes relate to timely payment of interest and ultimate payment of principal. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

The Transaction is a new securitisation of education debtors, rescheduled and previously non-performing debt agreements (‘Sold Claims’) sold by the Seller (‘Real People (Pty) Ltd’) to the Issuer. The previously non-performing debts (unsecured) are made up of: debts that were 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.

RATING RATIONALE

The Transaction’s performance depends on the ability of Real People Investment Holdings Ltd (‘RPIH’), acting as the Servicer, to collect on the rescheduled debt agreements. RPIH currently has a Special Servicer Quality rating of ‘SQ2+(ZA)’. The Servicer Agreement warrants for the replacement of RPIH as the Servicer in the event of a Special Servicer Quality downgrade 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%.

Prior to transaction closing, all receipts were 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.

All debit order payments made pursuant to fulfilling the obligations of the sold claims will be paid directly into the Issuer’s Account Bank. Proceeds from the Subordinated Notes were used to fund the Cash Reserve at Transaction Closing, which provides credit enhancement to the Transaction and is used to service the applicable Priority of Payments on each Payment Date. The Cash Reserve Required Amount is 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 are subordinate to the claims of the Class B Noteholders, and the claims of the Class B Noteholders are subordinate to the claims of the Class A Noteholders. The Class A Notes are 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.

RATINGS HISTORY

Stock code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
EFS0A1
12 October 2015
n.a
A1-(ZA)(sf)
n.a
EFS0A2
12 October 2015
A(ZA)(sf)
n.a
Stable
EFS00B
12 October 2015
BBB(ZA)(sf)
n.a
Stable
EFS0CU
n.a
Unrated
Unrated
Unrated
 
 
Stock code
Last Rating
Long Term Rating
Short Term Rating
Outlook
EFS0A1
12 October 2015
n.a
A1-(ZA)(sf)
n.a
EFS0A2
12 October 2015
A(ZA)(sf)
n.a
Stable
EFS00B
12 October 2015
BBB(ZA)(sf)
n.a
Stable
EFS0CU
n.a
Unrated
Unrated
Unrated

ANALYTICAL CONTACTS

Corné Els

Structured Finance Analyst

+27 11 784 1771

CorneE@globalratings.net

Tinashe Mujuru

Junior Analyst

+27 11 784 1771

TinasheM@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Structured Finance Rating Criteria – Feb ’15;

Global Consumer Asset Backed Securitisation Rating Criteria – Apr ’15;

Real People Investment Holdings Ltd Servicer Quality Rating Report – Jul ’15;

Tailored stressed collections approach; and

Previous Ratings Announcement – 30 Sep ’15.

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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS RATING ANNOUNCEMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

Account Bank A bank where the transaction account is held.
Administration A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates’ Court Act 32 of 1944 (South Africa).
Ageing The age of an asset or obligation.
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.
Capital The sum of money that is used to generate proceeds.
Cash Flow A financial term for monetary changes in operations, investing and financing activities.
Claim A formal request or demand.
Commingling The mixing of various transaction parties’ funds in an account.
Commingling risk The risk that the funds payable to a counterparty may not be honoured due to temporary possession of funds by a Servicer or Administrator.
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).
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.
Deed A legal document that is signed and delivered, especially one regarding the ownership of property or legal rights.
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.
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.
Indemnity A security or protection against a loss or other financial burden.
Issuer The party indebted or the person making repayments for its borrowings.
Junior A security that has a lower repayment priority than senior securities.
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.
Lender A credit provider that is owed debt obligations by a debtor.
Lessee The party that enjoys temporary use of a corporeal thing.
Lessor The owner or agent that acts on behalf of the owner of property that grants the temporary use of a corporeal thing.
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.
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.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
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.
   
   
Noteholder Investor of capital market securities.
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.
Performing An obligation that performs according to its contractual obligations.
Pledge Constituted by an agreement between the pledgor, who undertakes to deliver the article, and the pledgee, and subsequent delivery of the property in question as security for debt. A pledge is only applicable to movable property.
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.
Proceeds Funds from issuance of debt securities or sale of assets.
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.
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.
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.
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.
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.
Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
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.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
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 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;
  • Final, signed Administration Agreement;
  • Final, signed Applicable Pricing Supplements
  • Final, signed Common Terms Agreement;
  • Final, signed Deed of Suretyship;
  • Final, signed Guarantee;
  • Final, signed Issuer Indemnity;
  • Final, signed Pledge and Cession;
  • Final, signed Programme Memorandum
  • Final, signed Sale of Claims Agreement;
  • Final, signed Security Cession Agreement; and
  • Final, signed Servicing Agreement;
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