Johannesburg, 29 October 2018 — Global Credit Ratings (“GCR”) has affirmed the final, public long-term credit ratings of the following securities issued by Fox Street 6 (RF) Limited (the “Issuer” or the “Transaction” or “Fox Street 6”) on 8 August 2018:
R200m, Class A1 Notes, stock code FS6A1.……………………………AAA(ZA)(sf), Outlook Stable;
R400m, Class A2 Notes, stock code FS6A2.………………….……….. AAA(ZA)(sf), Outlook Stable;
R400m, Class A3 Notes, stock code FS6A3.………………….…………AAA(ZA)(sf), Outlook Stable;
R150m, Class B1 Notes, stock code FSB1.……………………………..AA(ZA)(sf), Outlook Stable;
R50m, Class C1 Notes, stock code FS6C1U.………………………….A+(ZA)(sf), Outlook Stable;
R35m, Class D1 Notes, stock code FS6D1U.…………………………BBB(ZA)(sf), Outlook Stable.
Concurrently, GCR accorded indicative, public long-term credit ratings to the contemplated issuance, as follows:
R85m, Class A1 Notes, stock code FS6A1.…………………………..AAA(ZA)(sf), Outlook Stable;
R175m, Class A2 Notes, stock code FS6A2.………………….………..AAA(ZA)(sf), Outlook Stable;
R175m, Class A3 Notes, stock code FS6A3.………………….………..AAA(ZA)(sf), Outlook Stable;
R65m, Class B1 Notes, stock code FSB1.…………………………….AA(ZA)(sf), Outlook Stable;
R22m, Class C1 Notes, stock code FS6C1U.…………………………A+(ZA)(sf), Outlook Stable;
R16m, Class D1 Notes, stock code FS6D1U.………………………..BBB(ZA)(sf), Outlook Stable.
The Issuer also initially issued R100m of unrated Class E1 Notes, expected to be increased to R144m, and was granted a Subordinated Loan for an amount of R20m by Investec Bank Limited, which is expected to be increased to R28m. Neither the Class E1 Notes nor the Subordinated Loan are rated.
The credit ratings accorded to the Class A Notes relate to timely payment of interest and ultimate payment of principal by the Final Redemption Date of the Notes. The ratings accorded to all the other securities relate to ultimate payment of interest and principal by the Final Redemption Date of those Notes. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
The affirmation of the final, public ratings of the existing Notes is valid for one year and will expire on 29 October 2019. The indicative, public ratings of the contemplated issuance are valid for one month and will expire on 29 November 2018.
Fox Street 6 is a R5bn Residential Mortgage Backed securitisation (“RMBS”) of home loans originated by Investec Bank Limited (“Investec”) to its private banking clients. Investec has previously executed other RMBS transactions, which are rated by GCR.
On initial issuance in August 2018, the Issuer used the proceeds from the issuance of the Notes to purchase an initial portfolio of home loans (the “Participating Assets”) from Investec and to fund certain reserves. Fox Street 6 is planning a tap issuance that is expected to increase the aggregate amount outstanding for all Classes of Notes from R1.335bn to R1.917bn. No new tranches of Notes will be introduced. Fox Street 6’s portfolio of Participating Assets and reserves will be increased accordingly.
The Notes under the Transaction start to amortise from Transaction close (August 2018). The first quarterly Payment Date is yet to occur in November 2018. The Transaction operates two separate pre-enforcement Priorities of Payments – one that applies to interest receipts on home loans and payments of interest and expenses on the Notes; and one that applies to principal receipts on the home loans and principal payments on the Notes.
GCR was provided with the indicative enlarged pool of Participating Assets, of aggregate principal amount outstanding R1.86bn, measured as at 30 September 2018. The indicative pool includes the assets presently held by Fox Street 6, and those earmarked for purchase on tap-issuance date. All need to satisfy the Eligibility Criteria set out in the Transaction Documents. The Seller may repurchase or substitute some Participating Assets, subject to the required conditions being satisfied, in accordance with the Transaction Documents. 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 – purchased by the Issuer.
Investec’s Private Bank has a clearly-defined target market of high-earning qualified professionals and high net-worth individuals. The bespoke private banking client base results in low cumulative defaults. The reported cumulative defaults in respect of the >90 days and >180 days buckets peaked, for home loans originated in 2008, at 6.4% and 4.1% respectively, as at 30 September 2018. Investec’s total home loan book has a relatively high prepayment rate. As at 30 September 2018, GCR observed an average annualised prepayment rate for the total home loan book of 23.08%, and a 17.29% net repayment rate (contractual repayments plus prepayments less redraws, re-advances and further advances), both since January 2009.
As at 30 September 2018, the indicative pool of Participating Assets had a weighted average Original Loan-To-Value (“LTV”) ratio of 75.8%, a Current LTV ratio of 67.6% (June 2018, existing pool: 70.6%) and a weighted average Debt-to-Income (“DTI”) ratio of 20.0% (June 2018, existing pool: 20.3%).
|Primary Analyst||Secondary Analyst|
|Yehuda Markovitz||Tinashe Mujuru|
|Structured Finance Analyst||Structured Finance Analyst|
|+27 11 784 1771||+27 11 784 1771|
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Master Structured Finance Rating Criteria, updated September ’18.
- Global Consumer Residential Mortgage Backed Securities (“RMBS”) Rating Criteria, May ’17.
- Investec Bank Limited Rating Report, published in October ’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.
|Advance||A lending term, to transfer funds from the creditor to the debtor.|
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|Asset||An item with economic value that an entity owns or controls.|
|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.|
|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.|
|Enforcement||To make sure people do what is required by a law or rule et cetera.|
|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.|
|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.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|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.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|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).|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|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.|
|Reserves||A portion of funds allocated for an eventuality.|
|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.|
|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.|
|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.|
|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.|
|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.|
|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 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, 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 face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to the Issuer.
The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The information received from the Arranger (Investec) and other reliable third parties to accord the credit ratings includes:
- Pool cut of existing assets (30 September 2018);
- Pool cut of additional assets (30 September 2018), and
- Indicative capital structure.
Fox Street 6 (RF) Limited – Existing Ratings Affirmed and New Indicative Ratings Accorded