Johannesburg, 7 December 2017 — Global Credit Ratings (“GCR”) has affirmed and withdrawn the following final, public long-term credit ratings and outlooks accorded to the following Notes Issued by Fox Street 4 (RF) Ltd, (“the Issuer”):
| Class A3 Notes, | stock code FS4A3U; | Stable Outlook; | ||
| Class A4 Notes, | stock code FS4A4U; | Stable Outlook. | ||
| Class A5 Notes, | stock code FS4A5U; | Stable Outlook; | ||
| Class B1 Notes, | stock code FS4B1U; | Positive Outlook; | ||
| Class C1 Notes, | stock code FS4C1U; | Positive Outlook; and | ||
| Class D1 Notes, | stock code FS4D1U; | Positive Outlook. |
The Transaction has a Subordinated Loan of R422,905,567 that 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.
RATING RATIONALE
Fox Street 4 (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 unlisted Notes on 20 March 2015. This is Investec’s fourth Fox Street RMBS transaction.
The Issuer repaid a total of R543m of the FS4A3U Notes at 20 September 2017. The portfolio principal outstanding decreased from R3,053,302,702 at October 2016 to R2,701,550,246 at August 2017. The Transaction exhibited strong performance. GCR observed a stable excess spread, having calculated an average excess spread of 1.7% for the last four quarters ending 31 August 2017. The Notes have a sequential amortisation profile that naturally caused an increase in the Credit Enhancement levels.
None of the Transaction’s Stop Purchase or Servicer Default Events occurred over the past 12 months. The Issuer reported R21.2m (15 accounts) in arrears at August 2017. Early arrears (<3 months) were R7.8m (8 accounts) of the portfolio, with an average Current Loan to Value of 61.6%. Late arrears (>3 months) increased from a zero balance a year ago to R13.3m (7 accounts). The late arrears have an average Current Loan to Value of 70.4% as at August 2017.
GCR noted the gradual increase of the accounts in arrears and more recently an increase in defaults, although at low levels that is as a result of the seasoning of the portfolio. All of the Capital Reserve, Liquidity Reserve, Mortgage Bond Registration Costs Reserve and Redraw Reserve required amounts were maintained.
The Transaction reported an annualised prepayment rate of 18.3% (measured from Transaction close to 31 August 2017). The Transaction has a high non-owner occupied properties exposure at 32.3% at August 2017. The majority of the properties are situated in Gauteng at 59.2% and Western Cape at 25.6% at August 2017.
RATING SENSITIVITY
| Security class | |||||||
| Class A3 Notes | |||||||
| Class A4 Notes | |||||||
| Class A5 Notes | |||||||
| Class B1 Notes | |||||||
| Class C1 Notes | |||||||
| Class D1 Notes |
RATINGS HISTORY
| Security class | |||||
| Class A3 Notes | |||||
| Class A4 Notes | |||||
| Class A5 Notes | |||||
| Class B1 Notes | |||||
| Class C1 Notes | |||||
| Class D1 Notes | |||||
| Security class | |||||
| Class A3 Notes | |||||
| Class A4 Notes | |||||
| 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
Committee Chairman
Yohan Assous
Sector Head: Structured Finance Ratings
+27 11 784 1771
yohan@globalratings.net
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Feb ’17,
Global Residential Mortgage Backed Securities Rating Criteria – May ’17,
Fox Street 4 (RF) Ltd Surveillance Report – Dec ’16 and
Investec Bank Limited Financial Institution ratings – Dec ’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.
| 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 | 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. |
| 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. |
| 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. |
| 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. |
| Loss | A tangible or intangible, financial or non-financial loss of economic value. |
| 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. |
| Recovery | The action or process of regaining possession or control of something lost. To recoup losses. |
| 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. |
| 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. |
| 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. |
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings were 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 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 were disclosed to the Arranger with the ratings and outlooks of the Class B1 Notes, Class C1 Notes and Class D1 Notes having been contested. GCR has not revised the ratings accorded to the Class B1 Notes, Class C1 Notes and Class D1 Notes, however the outlooks have remained on Positive due to qualitative concerns that were identified and subsequently remedied.
GCR received the Loan Book as at 31 August 2017 and the Quarterly Investor reports (21 December 2015 to 20 September 2017).
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.
