Johannesburg, 29 March 2018 — Global Credit Ratings (‘GCR’) has affirmed the following final, public long-term credit ratings accorded to the following Notes issued by Fox Street 2 (RF) Ltd, (‘the Issuer’):
● Class A5 Notes, stock code FS2A5; AAA(ZA)(sf) Stable Outlook.
GCR concurrently upgraded the following final, public long-term credit ratings accorded to the following Notes issued by the Issuer and accorded a Stable Outlook:
● Class B1 Notes, stock code FS2B1; AA(ZA)(sf) Stable Outlook;
● Class C1 Notes, stock code FS2C1; A(ZA)(sf) Stable Outlook; and
● Class D1 Notes, stock code FS2D1; BBB(ZA)(sf) Stable Outlook.
The Transaction has a Subordinated Loan of R119,227,926 that is unrated.
GCR has withdrawn the rating on the FS2A4 Notes that were paid in full on 20 February 2018.
The credit ratings accorded to the Class A Notes relate to timely payment of interest and ultimate payment of principal, whilst the ratings on all other securities relate to ultimate 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.
RATING RATIONALE
Fox Street 2 (RF) Limited is a 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 portfolio principal outstanding decreased from R1,006,977,284 at October 2016 to R887,586,555 at October 2017. GCR calculated an annual net repayment rate of 11.86% for the year ending 31 October 2017. The Issuer fully repaid the FS2A4 Notes and R648,454,605 of total notes to date.
The Transaction exhibited strong performance. GCR observed a stable excess spread, having calculated an average annualised excess spread of 1.8% for the last four quarters ending 31 October 2017. The Notes have a sequential amortisation profile that naturally causes a proportionate increase in the Credit Enhancement levels.
None of the Transaction’s Trigger Events (e.g. Stop Purchase or Servicer Default) occurred over the past 12 months. The Issuer reported R3.7m (3 accounts) in arrears at October 2017. Early arrears (<3 months) were R1.2m (1 accounts) of the portfolio. Late arrears (>3 months) were R2.6m (2 accounts), from R4.2m as at the previous reporting period. The two late arrears accounts have an average Current Loan to Value of 104.3% as at October 2017.
Early arrears for the quarter ending January 2017 (0.8%) and for the quarter ending July 2017 (0.8%) were at levels precedented only in the quarter ended October 2016 (0.9%). As at October 2017, early arrears had reduced to 0.13% of the asset portfolio. Defaults exhibit a rising trend in 2017 due to loan seasoning but are fully provisioned for in the transaction structure. However, these levels were still low and arrears and defaults show some rehabilitation in subsequent quarters.
RATINGS HISTORY
| Security class | |||||||
| Class A5 Notes | |||||||
| Class B1 Notes | |||||||
| Class C1 Notes | |||||||
| Class D1 Notes |
ANALYTICAL CONTACTS
Corné Els
Senior Structured Finance Analyst
+27 11 784 1771
CorneE@globalratings.net
Secondary Analyst
Yehuda Markovitz
Structured Finance Analyst
yehudam@globalratings.net
Committee Chairman
Yohan Assous
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Feb ’17
Global Residential Mortgage Backed Securities Rating Criteria – May ’17
Fox Street 2 (RF) Ltd Surveillance Report – Feb ’16
Investec Bank Limited Financial Institution ratings – Oct ’17
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.
| Amortisation | From a liability perspective, the paying off of debt in a series of instalments over a period of time. From an asset perspective, the spreading of capital expenses for intangible assets over a specific period of time (usually over the asset’s useful life). |
| Arrears | General term for non-performing obligations, i.e. obligations that are overdue. |
| Bond | A long-term debt instrument issued by either: a company, institution or the government to raise funds. |
| Capital | The sum of money that is used to generate proceeds. |
| 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. |
| 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 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors. |
| 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. |
| Income | Money received, especially on a regular basis, for work or through investments. |
| 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. |
| Liquidity | The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity. |
| 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. |
| 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. |
| Provision | An amount set aside for expected losses to be incurred by a creditor. |
| 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. |
| Seasoning | The age of an asset, the time period passed since origination. |
| 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. |
| 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. |
| Subordinated Loan | A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche. |
| 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. |
| Trigger Event | An event caused by transactional performance or environmental changes that would impact a transaction. |
| Ultimate Payment | A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries. |
| 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. |
For a detailed glossary, please click here.
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 has been disclosed to the Arranger with no contestation of the rating.
GCR has received the October 2017 pool cut and the quarterly Investor Reports (22 February 2017, 20 May 2017, 22 August 2017 and 21 November 2017) and SENS announcement of 20 February 2018 reference to the quarterly principal payment.
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.
