Announcements Rating Alerts Structured Finance

Fox Street 6 (RF) Limited – Credit Ratings of Various Classes of Notes Withdrawn, Affirmed and Upgraded

Rating Action

2 July 2020 – GCR Ratings (“GCR”) has taken the rating actions indicated in the table below on the credit ratings of the various Classes of Notes issued by Fox Street 6 (RF) Limited (“Fox Street 6”). These actions follow GCR’s annual review of the transaction.

Security Class Stock Code Amount Outstanding Rating Class Rating Scale Rating Outlook / Watch Action
Class A1 FS6A1 R0 Issue Long Term National WD(ZA)(sf) N.A. Withdrawal
Class A2 FS6A2 R325,882,262 Issue Long Term National AAA(ZA)(sf) Stable Outlook Affirmation
Class A3 FS6A3 R400,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook Affirmation
Class B1 FS6B1 R150,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook Upgrade
Class C1 FS6C1U R50,000,000 Issue Long Term National AA(ZA)(sf) Stable Outlook Upgrade
Class D1 FS6D1U R35,000,000 Issue Long Term National A+(ZA)(sf) Stable Outlook Upgrade

The transaction has outstanding Class E Notes of R100,000,000 and a Subordinated Loan of R20,039,716 both of which are unrated.

The credit ratings accorded to the Class A Notes relate to timely payment of interest and ultimate payment of principal by their Final Redemption Date, whilst the ratings on the other Classes of Notes relate to ultimate payment of interest and ultimate payment of principal by their Final Redemption Date. 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 6 (RF) Limited is a Residential Mortgage Backed Securities (“RMBS”) securitisation of home loans originated by Investec Bank Limited (“Investec”) to its private banking clients that issued R1.335bn of secured Notes on 8 August 2018. Investec has executed several other similar Fox Street RMBS transactions.

The Notes amortise from issuance and, since transaction close, Notes to the value of R274.1m have been redeemed, including all of the Class A1 Notes issued which have been repaid in full, hence the withdrawal of the credit rating thereof.

Transaction performance is in line with expectations, with few delinquencies and defaults occurring and stable, positive excess spread being earned. No Trigger Events or Stop Purchase Events have taken place.

Since transaction close to 30 April 2020, four loans defaulted, an aggregate R7.1m of outstanding principal balance as at default, or a cumulative 0.63% of the relevant quarter’s opening principal balance. One of these defaults has since rehabilitated. Loans in arrears of greater than 30 days but not yet in default amounted to R4.9m, or 0.48% of the performing portfolio.

Excess spread over the year ending 30 April 2020 measured 0.85% of the average quarterly opening total Notes outstanding.

Prepayments are high at an annualised 17.9% (of maximum portfolio balance) since transaction close, which is typical of the Originator’s home loan portfolio. However, these are somewhat offset by consistently high redraws, resulting in a net portfolio repayment rate of 11.0%.

GCR considered the effect of the COVID-19 crisis on the transaction. Data provided by Investec shows that offers of relief taken up or requested by affected borrowers as at 22 April 2020 amounted to R265,368 in monthly instalments due (roughly 2.5% of contractual instalments) and R236,431as at 17 June 2020. GCR focused on the relief as at 22 April, being slightly higher than at June. The April relief instalments consisted chiefly of full payment holidays but included a few instances where interest only was to be deferred. The relief was granted on a one- to two- month basis. GCR stressed cash inflows in its cash flow model by modelling all of the abovementioned relief granted or requested as at April as full payment holidays (with no interest only deferrals). GCR then doubled this amount and assumed such reduction in cash receipts to continue for six months.

GCR also accounted for COVID-induced decreases in property values by reducing its latest (December 2018) indexed property values by 20%. Such decrease leads directly to reduced modelled recovery rates on defaulted loans:

Table 1: Modelled Recovery Rates

Rating Scenario: AAA AA A BBB BB B
Pre 20% Property Valuation Reduction 72.94% 76.64% 80.19% 81.42% 83.42% 85.62%
Post Reduction 60.59% 63.87% 67.06% 68.18% 70.03% 72.04%

Source: GCR

Thus, decreased monthly cash inflows and reduced recovery values were incorporated into GCR’s modelling of the transaction for the current review.

GCR views the risk of increased delinquencies and defaults in the transaction’s asset portfolio to have heightened since the onset of the crisis, albeit to a lower than market-average degree. However, GCR notes that the payment relief offered by Investec mitigates this risk. Additionally, modelled default rates are based on market averages, derived mainly from Original Loan to Value (“OLTV”) ratios, and are significantly higher than those historically observed for the various Fox Street transactions, whose high quality customer base and Eligibility Criteria support performance that is far superior to the aggregate of the home loan market. Therefore, GCR did not add extra stresses to modelled delinquency and default rates as they are deemed already conservative.

The rating actions are direct results of the stressed model output, where GCR’s default, recovery and cash flow modelling methodology (see GCR’s Criteria for Rating Residential Mortgage Backed Securities (“RMBS”) – November ’18) was followed, with added stresses to account for COVID-19 as described above. The rating upgrades of the Class B, C and D Notes reflect the increases in credit enhancement that these Classes have gained since the last surveillance of the transaction, along with stable and positive performance over the year, with the positive rating effect thereof moderated by the COVID stresses imposed in the cash flow model.

Analytical Contacts

Primary Analyst Yehuda Markovitz Structured Finance Analyst
Johannesburg, ZA yehudam@GCRratings.com +27 11 784 1771
Committee Chair Yohan Assous Sector head: Structured Finance Ratings
Johannesburg, ZA yohan@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for Rating Structured Finance Transactions – September ’18
Criteria for Rating Residential Mortgage Backed Securities (“RMBS”) – November ’18
Investec Bank Limited Rating Review – August ’19

Ratings History

Notes Class Review Rating Scale Rating Outlook/Watch Date
Class A1(FS6A1) Initial National AAA(ZA)(sf) Stable Outlook Aug. 2018
Last National AAA(ZA)(sf) Stable Outlook May 2019
Class A2 (FS6A2) Initial National AAA (ZA)(sf) Stable Outlook Aug. 2018
Last National AAA(ZA)(sf) Stable Outlook May 2019
Class A3 (FS6A3) Initial National AAA (ZA)(sf) Stable Outlook Aug. 2018
Last National AAA(ZA)(sf) Stable Outlook May 2019
Class B1 (FS6B1) Initial National AA(ZA)(sf) Stable Outlook Aug. 2018
Last National AA(ZA)(sf) Stable Outlook May 2019
Class C1 (FS6C1U) Initial National A+(ZA)(sf) Stable Outlook Aug. 2018
Last National A+(ZA)(sf) Stable Outlook May 2019
Class D1 (FS6CD1U) Initial National BBB(ZA)(sf) Stable Outlook Aug. 2018
Last National BBB(ZA)(sf) Stable Outlook May 2019

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S GLOSSARY

Affirmation See GCR Rating Scales, Symbols and Definitions.
Arrears An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.
Borrower The party indebted or the person making repayments for its borrowings.
Cash Funds that can be readily spent or used to meet current obligations.
Credit Enhancement Limited protection 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.
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.
Delinquency When a receivable is overdue and not paid on its payment due date.
Eligibility Criteria Limitations imposed on the type and quality of assets that can be sold by the seller into the securitisation vehicle which ensure the transaction will track the performance of historical data analysed as closely as possible.
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.
Indexed Property Valuation An assessment of the property value, with the value being compared to similar properties in the area.
Instalment Payment made to honour obligations in regards to a credit agreement in the following credited order: 1.) Satisfy the due or unpaid interest charges; 2.) Satisfy the due or unpaid fees or charges; and To reduce the amount of the principal debt.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Loan to Value Principal balance of a loan divided by the value of the property that it funds. LTVs can be computed as the loan balance to most recent property market value, or relative to the original property market value.
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.
Offset A right (Right of Offset) to set liabilities against assets in any dispute over claims.
Originator An entity that created assets and hold on balance sheet for securitisation purposes.
Performing An obligation that performs according to its contractual obligations.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.

For a detailed glossary of terms utilised in this announcement please click here.

SALIENT POINTS 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, securities or financial instruments being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, securities or financial instruments.

The credit ratings have been disclosed to the Arranger. The ratings above were solicited by, or on behalf of, the Issuer and therefore, GCR is compensated for the provision of the ratings.

Information received from Investec to accord the credit ratings included:

  • Investor Reports to 20 May 2020
  • COVID-19 Relief Data, April 2020 and June 2020
  • Other miscellaneous data
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.