Johannesburg, 30 May 2019 — GCR Ratings (“GCR”) has affirmed the following final, public long-term credit ratings of the following Notes issued by Fox Street 3 (RF) Ltd (the “Issuer”):
- Class A5 Notes, stock code FS3A5; AAA(ZA)(sf) Stable Outlook.
- Class B1 Notes, stock code FS3B1; AAA(ZA)(sf) Stable Outlook,
- Class C1 Notes, stock code FS3C1; AAA(ZA)(sf) Stable Outlook, and
- Class D1 Notes, stock code FS3D1; AAA(ZA)(sf) Stable Outlook.
GCR has concurrently upgraded the following final, public long-term credit ratings accorded to the following Notes issued by the Issuer, and revised their outlooks to Stable:
The Issuer has a Subordinated Loan of R173,787,320, which is unrated.
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.
GCR Methodology Update
GCR has reviewed the ratings of the abovementioned securities using its updated Global Master Structured Finance Rating Criteria (September 2018) and its Global Residential Mortgage Backed Securities Rating Criteria (November 2018) (“Criteria”). This is the first surveillance of Fox Street 3 to be conducted under the new Global Master Structured Finance Rating Criteria. Thus, GCR remodelled the Transaction in a pre-enforcement (and not post-enforcement) scenario.
RATING RATIONALE
Fox Street 3 (RF) Ltd is a Residential Mortgage Backed Securities (‘RMBS’) Securitisation of home loans originated by Investec Bank Ltd (‘Investec’) to its private banking clients. The Issuer issued listed Notes on 20 February 2015. This is Investec’s third Fox Street RMBS transaction.
The Transaction is amortising from its closing date and has thus far repaid R1.01bn of Class A Notes, or 51.9% of the total initial issuance amount of all classes of Notes. The sequential paydown of Notes by Class leads to incremental increases in the Credit Enhancement for each Class.
None of the Transaction’s Stop Purchase or Servicer Default Events occurred over the past 12 months and all of the Liquidity Reserve, Mortgage Bond Registration Costs Reserve and Redraw Reserve required amounts were maintained. Moreover, the Capital Reserve is being maintained at a higher amount (R39.6m) than required (R21.5m).
The home loan portfolio has shown superior performance. The Issuer reported R1.3m (1 account, 0.12%) in early arrears (< 3 months) at January 2019. Defaults (>3 months) on book were zero. Cumulative defaults since Transaction close (including rehabilitations) were R4.0m, or 0.20% of the original portfolio (post pre-funding).
A high annualised prepayment rate of 23.3% since Transaction close was calculated. However, the annualised net repayment rate on the home loans is only 14.9% due to the effect of redraws, re-advances and further advances. The annualised repayment rate on the Notes is 15.2%.
GCR observed a stable excess spread. The excess spread over the year to January 2019 was 1.5% (as a percentage of the year’s opening balance of Notes).
The weighted average margin to 3M JIBAR on the Notes increased by 25bps from 112bps at Transaction close to 138bps at 20 February 2019 as a result of the sequential repayment of the lower-coupon Notes first. Over the same period, the weighted average margin to Prime on the assets increased by 6bps from -131bps to -125bps.
NATIONAL SCALE RATINGS HISTORY
| Class | ||||
| Class A5 | ||||
| Class B1 | 18 December 2015 | |||
| Class C1 | 18 December 2015 | |||
| Class D1 | 18 December 2015 | |||
| Stock code | ||||
| Class A5 | ||||
| Class B1 | ||||
| Class C1 | ||||
| Class D1 |
ANALYTICAL CONTACTS
Primary analyst Secondary analyst
Yehuda Markovitz Charlene Chipoyera
Structured Finance & Securitisation Analyst Structured Finance & Securitisation Analyst
+27 11 784 1771 +27 11 784 1771
yehudam@GCRratings.com charlenec@GCRratings.com
Committee Chairperson
Yohan Assous
Sector Head: Structured Finance & Securitisation
+27 11 784 1771
yohan@GCRratings.com
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Sep ’18
Global Residential Mortgage Backed Securities Rating Criteria – Nov ’18
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17
Fox Street 3 (RF) Ltd New Ratings Report – December ’15
Investec Bank Limited Financial Institution Ratings Report – Nov ’18
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings are 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 Arranger participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to the Issuer.
GCR received the October 2018 pool cut and the quarterly Investor Reports (20 May 2018, 20 August 2018, 20 November 2018 and 20 February 2019).
The ratings were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY
| Advance | A lending term, to transfer funds from the creditor to the debtor. |
| 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. |
| Arrears | General term for non-performing obligations, i.e. obligations that are overdue. |
| Asset | An item with economic value that an entity owns or controls. |
| Bond | A long-term debt instrument issued by either: a company, institution or the government to raise funds. |
| Call Option | A provision that allows an Issuer the right, not the obligation, to repurchase a security before its maturity at an agreed price. The seller has the obligation to sell the security if the call option holder exercises the option. |
| 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. |
| Credit Rating Agency | An entity that provides credit rating services. |
| 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. |
| Enforcement | 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. |
| 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. |
| 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. |
| Option | Either a call or a put option. A call option gives the holder the right to buy assets at an agreed price on or before a particular date. A put option gives the holder the right to sell assets at an agreed price on or before a particular date. |
| Originator | An entity that creates assets (e.g., extends loans). |
| Payment Date | The date on which the payment of a coupon is made. |
| 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. |
| 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. |
| Rating Outlook | A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered). |
| 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 | 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. |
| Servicer | A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations. |
| Short-Term Rating | 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. |
| Structured Finance | A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whilst reducing risk. |
| Subordinated Loan | A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche. |
| Surveillance | Process of monitoring a transaction according to triggers, covenants and key performance indicators. |
| 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. |
| 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 of terms please click here.