Johannesburg, 11 February 2016 — Global Credit Ratings (‘GCR’) has accorded the following final, public long-term credit ratings to the following Notes issued by Fox Street 2 (RF) Ltd (‘the Issuer’):
|●||Secured Class A3 Notes,||stock code FS2A3;||due August 2038,||Stable Outlook;|
|●||Secured Class A4 Notes,||stock code FS2A4;||due August 2038,||Stable Outlook;|
|●||Secured Class A5 Notes,||stock code FS2A5;||due August 2038,||Stable Outlook;|
|●||Secured Class B1 Notes,||stock code FS2B1;||due August 2038,||Stable Outlook;|
|●||Secured Class C1 Notes,||stock code FS2C1;||due August 2038,||Stable Outlook; and|
|●||Secured Class D1 Notes,||stock code FS2D1;||due August 2038,||Stable Outlook.|
The Transaction has a Subordinated Loan of R119,227,926 that is unrated. The Transaction had Class A1 and A2 Notes that have been Paid In Full.
The Fox Street 2 (RF) Limited is a private Residential Mortgage Backed Securities (‘RMBS’) Securitisation of home loans originated by Investec Bank Limited (‘Investec’) to its private banking clients. The Issuer issued the listed Notes on 20 February 2014. This is Investec’s second Fox Street RMBS transaction. Investec previously had other RMBS transactions under the Private Residential Mortgages and Private Mortgages programmes.
The Issuer purchased the Participating Assets from Investec.
The Participating Assets are defined as all rights, titles and interests in and to: the home loans; the home loan agreements; and the Related Security in respect of such home loans.
Investec’s bespoke private banking client base resulted in low cumulative defaults. The reported cumulative defaults per >90 days and >180 days buckets peaked from home loans originated in 2008 at 5.7% and 3.4% respectively.
Investec Private Banking’s target market is the following three segments: Young Professionals, Preferred Employees and High Net Worth & Entrepreneurs.
The Transaction has a 14.0% non-owner occupied properties exposure that is substantially lower than Fox Street 3 (RF) Ltd (37.0% as at 31 October 2015) and Fox Street 4 (RF) Ltd (36.3% as at 31 August 2015).
The majority of the properties are situated in both Gauteng at 46.3% and Western Cape at 36.1%, which is relatively high in comparison to the GDP contribution per province. As at 31 October 2015, the home loan portfolio had a Weighted Average Current Loan-To-Value (LTV) ratio of 63.6% and a Weighted Average Debt-to-Income (DTI) ratio of 18.0%. Investec (‘originator’) does, however, originate home loans with a LTV ratio of up to 102%, and 50% DTI ratio.
The originator’s total residential loan book has a relatively high prepayment rate. As at 31 December 2015, GCR observed an annualised prepayment rate of the total Investec residential loan book of approximately 25.0%; and a 16.6% net payment rate (contractual repayments plus prepayments less redraws, re-advances and further advances). These rates are measured as a 12 month average and are based on dynamic, i.e. not static, loan book information. GCR observed that the Transaction’s latest reported annualised prepayment rate was 12.8% for the most recent reported period (quarter ended 31 October 2015) and 15.7% since Transaction Closing. The Transaction’s prepayment rate is different from the rates mentioned above as they track a static non-revolving portfolio as opposed to a dynamic revolving portfolio. In addition, the Transaction is subject to eligibility criteria.
The Transaction has several bank accounts namely the Transaction Account (primary bank account of the Issuer), the Collections Account, the Guaranteed Investment Account and Investec Bank Limited being rated ‘AA-(ZA)’ and ‘A1+(ZA)’ by GCR, on a long-term and short-term national scale respectively. In-line with GCR’s Counterparty Criteria, the ratings accorded to the Notes are not constrained by the Account bank ratings.
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 – Feb ’16,
Global Residential Mortgage Backed Securities Rating Criteria – Apr ’15 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.
|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).|
|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.|
|Applicable Pricing Supplement||A transaction document that describes the particulars of notes issued.|
|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.|
|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 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.|
|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.|
|Eligibility 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.|
|Enforceable||To make sure people do what is required by a law or rule et cetera.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.|
|Guarantee||An undertaking for performance of another’s obligations in event of default.|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Indemnity||A security or protection against a loss or other financial burden.|
|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.|
|Legal Opinion||An opinion regarding the validity and enforceability of a transaction’s legal documents.|
|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.|
|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.|
|Mortgage Loan||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.|
|Mortgagee||A creditor under a mortgage agreement.|
|National Credit Act||The National Credit Act 34 of 2005 (South Africa).|
|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.|
|Originator||An entity that created assets and hold on balance sheet for securitisation purposes.|
|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.|
|Prepayment||Early or excess repayment of an obligation. Partial or full prepayment of the outstanding loan amount.|
|Prepayment Rate||The rate of prepayment in relation to the pool of obligations. Also called prepayment speed.|
|Pricing||A process of determining the price of a debt security.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Private||An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.|
|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.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|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.|
|Securitatem debiti||Cession to secure debt where the cession of a personal right is affected as security for a 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.|
|Securitisation Vehicle||An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.|
|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 SPV||A Special Purpose Vehicle that has been created to realise and hold the security of the performance of the obligations of the Issuer that sold its assets to the Security SPV.|
|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.|
|Settlement||Full repayment of an obligation.|
|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/SPV||An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.|
|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.|
|Subordinated Loan||A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche.|
|Swap||An agreement between two parties for the exchange of a series of future cash flows. The exchange of one security for another. Normally an investment bank, which provides a swap.|
|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 ratings was influenced by any other business activities of the credit rating agency; b.) the ratings was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings was 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 ratings document.
The Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to the Arranger with no contestation of the ratings.
GCR has received the following signed and/or executed transaction documents: Programme Memorandum; Applicable Pricing Supplements; Account Bank Agreement; Administration Agreement; Cession in Securitatem Debiti (Participating Assets); Cession in Securitatem Debiti (Rights and Interests); Deed of Cession and Pledge; Deed of Suretyship; Guarantee Issued by the Issuer to the Secured Creditors; Indemnity between the Issuer and the Security SPV; ISDA Master Agreement; ISDA Credit Support Annexure; ISDA Schedule; Legal Opinion; Audit Opinion on the compliance with the relevant regulation; National Credit Act and Consumer Protection Act Legal Opinions; Preference Share Subscription Agreement; Sale Agreement; Servicing Agreement; Share Certificate; Common Terms of Agreement; Custody Settlement and Agency Agreement; Subordinated Loan Agreement; Subordinated Loan Certificate; Subscription Agreement; and Swap Confirmation.
The ratings above were solicited by, or on behalf of the rated client, and therefore, GCR has been compensated for the provision of the ratings.
Fox Street 2 (RF) Limited – New Ratings Accorded