Johannesburg, 17 July 2018 — Global Credit Ratings (“GCR”) has accorded indicative, public long-term credit ratings to the following securities to be issued by Fox Street 6 (RF) Limited (the “Issuer”) in August 2018:
R200m, Class A1 Notes, stock code TBA.…………………………. ‘AAA(ZA)(sf)’, Outlook Stable.
R400m, Class A2 Notes, stock code TBA.………………….………. ‘AAA(ZA)(sf)’, Outlook Stable.
R400m, Class A3 Notes, stock code TBA.………………….………. ‘AAA(ZA)(sf)’, Outlook Stable.
R150m, Class B1 Notes, stock code TBA………………….…..……. ‘AA(ZA)(sf)’, Outlook Stable.
R50m, Class C1 Notes, stock code TBA.……..…………..….……….‘A(ZA)(sf)’, Outlook Stable.
R35m, Class D1 Notes, stock code TBA………………………….. ‘BBB-(ZA)(sf)’, Outlook Stable.
The Issuer will also issue R100m of unrated Class E1 Notes and will be granted a Subordinated Loan for an amount of R20.9m by Investec Bank Limited. Neither the Class E1 Notes nor the Subordinated Loan is rated. All issuance amounts stipulated as above in respect of the Notes and Subordinated Loan are indicative amounts. The final issuance amounts for each tranche will be dependent on investor demand. GCR was provided with indicative margins for each tranche of Notes by the Arranger and these were utilised in GCR’s cash flow model.
The indicative, public 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.
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. Investec has previously executed five other RMBS transactions, which are all rated by GCR. Pursuant to the transaction, the Issuer will purchase an initial portfolio of home loans (the “Participating Assets”) from Investec. GCR was provided with an indicative portfolio worth R1.3bn, which was used in its indicative rating analysis. The home loans to be purchased by the Issuer must 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.
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 per >90 days and >180 days buckets peaked for home loans originated in 2008, at 6.3% and 4.0% respectively. However, GCR utilises its standard RMBS default frequency matrix to establish the base case default frequency as opposed to the historical data. At 31 May 2018, the indicative home loan portfolio to be securitised had a weighted average Original Loan-To-Value (“OLTV”) ratio of 75.2% and a weighted average Debt-to-Income (“DTI”) ratio of 20.4%. Further to the above, Investec’s total home loan book has a relatively high prepayment rate. As at 30 April 2018, GCR observed an annualised prepayment rate for the total home loan book of 23.04%, and a 17.18% net repayment rate (contractual repayments plus prepayments less redraws, re-advances and further advances).
The weighted average OLTV based on the indicative portfolio provided for Fox Street 6 (RF) Limited was established to be lower than that of previous Fox Street structures, with the exception of Fox Street 2 (RF) Limited. As at the date of the initial rating by GCR, the weighted average OLTV for Fox Street 1 (RF) Limited was 76.36%; whereas it was 72.04% for Fox Street 2 (RF) Limited; 79.11% for Fox Street 3 (RF) Limited; 81.00% for Fox Street 4 (RF) Limited and 79.92% for Fox Street 5 (RF) Limited.
The transaction operates two separate Pre-Enforcement Priorities of Payments; one that applies to all interest receipts on the Participating Assets, which is utilised make payments in respect of, amongst others, interest on the Notes and senior expenses. The second one applies to principal collections on the Participating Assets, which will be utilised to make, amongst other items, principal payments on the Notes (with a provision to allocate cash to any senior expense shortfall). GCR ran a cash flow model reflecting a pre-enforcement scenario and based on the information provided by Investec and assumptions that are in line with its Global RMBS Rating Criteria. For more information, please refer to the Fox Street 6 (RF) Limited Pre-Funding Report to be published in July 2018.
|Primary Analyst||Secondary Analyst|
|Tinashe Mujuru||Yehuda Markovitz|
|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 February ’17.
- 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.
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|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.|
|Asset||An item with economic value that an entity owns or controls.|
|Cash Flow||A financial term for monetary changes in operations, investing and financing activities.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|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.|
|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.|
|Default Risk||The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).|
|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.|
|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.|
|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.|
|Obligor||The party indebted or the person making repayments for its borrowings.|
|Performing||An obligation that performs according to its contractual obligations.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|Rated Securities||Debt securities that have been accorded a credit rating.|
|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).|
|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.|
|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.|
|Senior||A security that has a higher repayment priority than junior securities.|
|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.|
|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.|
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 and the Arranger with no contestation of the ratings.
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 (RMB) and other reliable third parties to accord the credit ratings included:
- Draft Account Bank Agreement;
- Draft Administration Agreement;
- Draft Programme Memorandum;
- Draft Cession in Securitatem Debiti (Participating Assets);
- Draft Cession in Securitatem Debiti (Rights and Interests);
- Draft Guarantee Issued by the Security SPV in favour of the Secured Creditors;
- Draft Indemnity between the Issuer and the Security SPV;
- Draft Pre-Issue Sale Agreement;
- Draft Sale Agreement;
- Draft Servicing Agreement;
- Draft Subordinated Loan Agreement;
- Draft Common Terms Agreement
- Draft Issuer Owner Trust Deed;
- Draft Security SPV Owner Trust Deed;
- Draft Issuer Memorandum of Incorporation;
- Draft Security SPV Memorandum of Incorporation;
- Draft Swap Agreement;
- Draft Warehouse Facility Agreement;
- Indicative portfolio to be securitised;
- Historical Prepayments data.