Announcements Rating Alerts Structured Finance

GCR affirms ‘A1+(ZA)(sf)’ rating assigned to the Notes issued by iVuzi Investments (RF) Limited

Rating Action

Johannesburg, 31 March 2021 – GCR Ratings (“GCR”) has affirmed the national scale short-term programme credit ratings of ‘A1+(ZA)(sf)’ assigned to the Asset Backed Commercial Paper (“ABCP” or the “Notes”) issued by iVuzi Investments (RF) Limited (“iVuzi” or the “Issuer”) from time to time under the Issuer’s R15bn hybrid ABCP Programme (the “Programme”). The ratings relate to timely payment of interest and principal.

The affirmation follows the annual review of the ratings and reflects the weighted average credit quality of the Participating Assets, the credit enhancement provided through the Program Wide Credit Enhancement (“PWCE”) and the Liquidity Facility (“LF”).

The iVuzi Programme can acquire Financial Assets, Rated Securities and Participating Eligible Investments up to its R15bn limit, subject to Eligibility Criteria but without prior review by GCR, through the utilisation of proceeds of the issuance of Notes that are limited to a maximum maturity of one year. The Issuer’s assets and liabilities are measured on an ongoing basis at their present values, which are utilised to calculate the liquidity and credit enhancement requirements in the structure from month to month.

Rating Rationale

Counterparty Risk

FirstRand Bank Limited (“FRB”), through its Rand Merchant Bank (“RMB”) division, plays several roles in the Programme. These include Master Liquidity Facility and Master Credit Enhancement Facility Provider. GCR’s view of the associated counterparty risk remains the same as at previous reviews of the Programme, with such risk assessed to be in line with GCR’s Criteria for Rating Structured Finance Transactions.

Operational Review

GCR conducted an operational review call with RMB’s SPV Management team in February 2021. Operations that relate to management of the Transaction are being conducted remotely. There have been some changes in the asset mix, with a migration to industries less-affected by the COVID-19 pandemic. iVuzi’s profitability year on year rose on the back of improved pricing, increased size of the vehicle and increased demand for short-term paper.

Underlying Asset Quality

The quality of the mix of the underlying assets in iVuzi has changed over the review period. As at February 2020, 56.7% of the portfolio accreted value represented assets in the ‘A(ZA)’ band (‘A+(ZA)’, ‘A(ZA)’ and ‘A-(ZA)’) with 43.3% of the portfolio at ‘AA-(ZA)’ or above and no assets below ‘A-(ZA)’. As at February 2021, 52.0% was in the ‘A(ZA)’ band or below the ‘A(ZA)’ band, with 48.0% ‘AA-(ZA)’ or above. The weighted average credit quality of the Participating Assets together with the available credit enhancement is still commensurate with a ‘A1+(ZA)(sf)’ rating. GCR will continue to monitor the exposure and credit quality of the underlying assets and may take rating action should the credit quality significantly deteriorate.

Support Mechanisms

As mentioned, the transaction is supported by Liquidity and Program Wide Credit Enhancement Facilities. These have been maintained at their required levels over the review period.

The LF is calculated as the outstanding principal amount of the Notes in issue minus the aggregate nominal value of the rated securities with maturities at least two days prior to those of any of the Notes of an equal amount, as well as cash held in the Collections Account, among other factors. The LF may be utilised to cover cash flow deficiencies due to market disruptions or timing mismatches between payments received and payments made by the Issuer. The LF does not cover defaulted assets.

The PWCE is dynamic and is calculated using a tailored model based on the present value of the Participating Assets and their underlying credit quality. As per GCR’s Criteria, to support the ratings, the required PWCE should be sufficient to cover three of the largest assets that are rated ‘A+(ZA)’ or lower.

Cost Coverage

GCR received data that confirms that the Issuer earns a spread adequate to cover its costs on an ongoing basis.

Surveillance and Monitoring

GCR continuously monitors the performance of iVuzi and publishes the Monitoring Dashboards on its website.

Analytical Contacts

Primary Analyst

Yehuda Markovitz

Senior Structured Finance & Securitisation Analyst

Johannesburg, ZA

YehudaM@GCRratings.com

+27 11 784 1771

     

Secondary Analyst

Siyuan Lu

Structured Finance & Securitisation Analyst

Johannesburg, ZA

SiyuanL@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 2018

Criteria for Rating Asset Backed Commercial Paper, November 2018

Criteria for Rating Financial Institutions, May 2019

Criteria for Rating Corporate Entities, May 2019

Criteria for the GCR Ratings Framework, May 2019

iVuzi Investments Limited Surveillance Report, February 2020

Ratings History

South African Securitisation Programme (RF) Limited – Series 2

Security class

Review

Rating scale

Rating

Date

ABCP

Initial

National

A1+(ZA)(sf)

Mar. 2016

 

Last

National

A1+(ZA)(sf)

Feb. 2020

 

Glossary of Terms/Acronyms

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 Quality

Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.

Commercial Paper

Commercial paper is a negotiable instrument with a maturity of less than one year. 

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.

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.

Hybrid

A form of security that has characteristics of various types of transaction or product.

Issuer

The party indebted or the person making repayments for its borrowings.

Liability

All financial claims, debts or potential losses incurred by an individual or an organisation.

Liquidity Facility

A facility provided to a structured finance transaction that will pay the Noteholders interest in the event that the underlying assets cash flows are inadequate.

Maturity

The length of time between the issue of a bond or other security and the date on which it becomes payable in full.

Nominal Value

The value of a security set by the entity that issues it. It is unrelated to market value. Also known as face value or par value.

Principal

The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.

Provision

The amount set aside or deducted from operating income to cover expected or identified loan losses.

Risk

The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.

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.

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 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, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

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

The Arranger participated in the rating process via virtual management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the Arranger and other reliable third parties to accord the credit ratings included:

  • iVuzi Investments Limited investor reports up to February 2021
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