Johannesburg, 10 May 2017 — Global Credit Ratings (“GCR”) has affirmed the final, public long-term credit rating of ‘A(ZA)(sf)’ with a Stable outlook accorded to the following Notes:
|R17,830,968||Class A2 Notes, EFS0A2, interest at 3M JIBAR + 3.00%, due 28 October 2023.|
Concurrently, GCR has affirmed the final, public long term credit rating of ‘BBB(ZA)(sf)’ with a Stable outlook accorded to the following Notes:
|R5,858,747||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 A2 and Class B Notes (collectively referred to as the Senior Notes) relate to the 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 securitisation of rescheduled and previously non-performing debt agreements (“Sold Claims”) sold by Real People (Pty) Ltd to the Issuer. The debt agreements (unsecured) were previously non-performing and were either: debt that was acquired from third parties; educational loans originated from the Aspire Group’s operations, loans originated from the Real People Home Finance business or General Purpose Loans (“GPL”) 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. The Real People Investment Holdings Ltd (“RPIH”) Special Servicer Quality rating was downgraded to ‘SQ2-(ZA)’, Negative outlook on 4 April 2017 from ‘SQ2+(ZA)’, Stable outlook. 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)’. DMC is a wholly owned subsidiary of Real People South Africa Holdings (Pty) Ltd that will continue to service the claims to be sold to the Issuer. GCR downgraded the RPIH long term and short term national scale ratings to CCC(ZA) and C(ZA) respectively on 9 March 2017, with the outlook accorded as Negative.
The Notes are amortising from the first Payment Date of 28 January 2016. The most recent quarterly principal repayment of the Notes occurred on 28 April 2017 (R14.2m of the Class A2 Notes and R4.7m of the Class B Notes). Following this principal repayment, 13% of the original Notes issued remain outstanding.
The Transaction is repaying ahead of schedule. On average, the Actual Cumulative Receipting has been 22.5% higher than the Expected Cumulative Receipting since Transaction Closing. On a monthly basis, the Actual Receipting reported in March 2017 exceeded the month to month Expected Receipting by 33.8%, which is the highest level reported since Transaction Closing.
In line with the above, the four loan books performed above expectations with the actual cumulative receipting reported for the Acquired, Education, GPL and Home Finance books exceeding the expected cumulative receipting by 18.3%, 18.1%, 44.6% and 56.6%, respectively, at the end of March 2017.
A Subordinated Interest Suspension Event will occur if the Actual Cumulative Receipting falls to below 95% of Expected Cumulative Receipting on any Determination Date. A Subordinated Capital Suspension Event will occur if the Actual Cumulative Receipting is less than 90% of the Expected Cumulative Receipting, following which the Notes will switch to sequential repayment of the principal amount outstanding. None of the aforementioned events have occurred since Transaction Closing. At 31 March 2017 the Actual Cumulative Receipting was reported as R261,056,900 or 122.50% of Expected Cumulative Receipting.
All receivables are collected directly into the Issuer’s bank account held at SBSA, currently rated ‘AA+(ZA)’ and ‘A1+(ZA)’ on GCR’s long term and short term national scale respectively. The Servicer somewhat mitigates commingling risk resulting from any payments that are made via direct deposit into the Servicer’s accounts, through the bi-monthly transfer of all such deposits from the Servicer’s accounts to the Issuer’s Account Bank.
Proceeds from the issuance of the Subordinated Notes funded the Cash Reserve, which is used to service the applicable Priority of Payments on each Payment Date and provides credit enhancement to the Transaction. The Cash Reserve Required Amount is maintained as an amount equal to 1% of the aggregate Principal Amount Outstanding of the Notes.
Senior Structured Finance Analyst
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Structured Finance Analyst
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Sector Head: Structured Finance Ratings
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Feb ’17;
Global Consumer Asset Backed Securitisation Rating Criteria – May ’16;
Evolution Future Flow Securities Surveillance Report – Mar ’17;
Real People Investment Holdings Ltd Servicer Quality Rating Report – Jul ’16 and subsequent ratings announcements;
Real People Investment Holdings Financial Institution Report – Jul ’16 and subsequent ratings announcements; and
The Standard Bank of South Africa Ltd Financial Institution Report – May ’16.
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.
|Account Bank||A bank where the transaction account is held.|
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|Capital||The sum of money that is used to generate proceeds.|
|Claim||A formal request or demand.|
|Commingling||The mixing of various transaction parties’ funds in an account.|
|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.|
|Debt||An obligation to repay a sum of money.|
|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.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|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.|
|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.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Payment Date||The date on which the payment of a coupon is made.|
|Performing||An obligation that performs according to its contractual obligations.|
|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.|
|Receivables||General term for economic benefit derived from 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.|
|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.|
|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.|
|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 ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Issuer and Arranger 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 ratings above were solicited by the Arranger and Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The credit ratings have been disclosed to the Arranger and Issuer with no contestation of the ratings.
The information received from the Arranger / Issuer:
- Collections data for the four loan books, each segmented into different ageing buckets based on the term of the loans from October 2015 to March 2017; and
- Quarterly Investor Reports from January 2016 to March 2017.
Evolution Future Flow Securities (RF) Ltd – Ratings affirmed