Announcements Rating Alerts Structured Finance

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

Rating Action

Johannesburg, 6 February 2020 – GCR Ratings (“GCR”) has affirmed the national scale short-term 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 reflect the weighted average credit quality of the Participating Assets and the credit enhancement provided through the Program Wide Credit Enhancement (“PWCE”) and Liquidity Facility (“LF”).

The iVuzi Programme, which is not fully supported, 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 the February 2019 review, with such risk assessed to be in line with GCR’s Criteria for Rating Structured Finance Transactions.

GCR noted the risk introduced to the transaction by provisions that allow the Issuer to terminate the Individual Liquidity Facility (“LF”) Agreement by giving five days written notice in the event that the Individual LF Provider is downgraded prior to finding a suitably rated replacement within 30 days. Nevertheless, GCR notes that it may not be in the interest of the Issuer to do so and therefore, the assigned ratings reflect the assumption that a termination of an Individual LF Agreement will only occur on condition that a replacement facility has been secured. Also, The Master LF Provider may also provide liquidity, which mitigates this risk.

Operational Review

GCR conducted an operational review of RMB in January 2020. RMB indicated that there were no changes to the credit, origination, monitoring, reporting and IT policies and/ or processes. iVuzi’s strategy is to increase its pool of assets and exposure thereof, albeit with a focus on assets with quality credit profiles as opposed to merely driving volumes. GCR considers a focus on quality to be prudent in the current operating environment.

Underlying Asset Quality

The quality of the mix of the underlying assets in iVuzi has changed, with an average of 53.1% for the year 2019 being assets in the ‘A’ band and 46.9% assets in the bands greater than ‘A+’, compared to 29.1% and 70.9%, respectively in 2018. This is primarily due to the most recently added assets and exposure being to relatively lower rated assets, which has been attributed to iVuzi’s target market of primarily unlisted assets and the South African macro environment, which has seen a downward migration in credit ratings.

Going forward, the program manager’s target is to maintain the mix within the 2019 range. Despite the change in the quality of the asset mix, the weighted average credit quality of the Participating Assets is still commensurate with a ‘A1+(ZA)(sf)’ rating. In addition, RMB has fifteen days to remove any asset that impacts on iVuzi’s ratings. 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

The transaction is supported by Liquidity and Program Wide Credit Enhancement Facilities. These have been maintained at their required levels for the year 2019.

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 Programme Wide Credit Enhancement is dynamic and is calculated using a tailored model based on the present value of the Participating Assets as well as 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+’ or lower.

Surveillance and Monitoring

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

Analytical Contacts

Primary Analyst Gary Nyoni Structured Finance Analyst
Johannesburg, ZA GaryN@GCRratings.com +27 11 784 1771
Secondary Analyst Corne Els Senior Structured Finance Analyst
Johannesburg, ZA CorneE@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
iVuzi Investments Limited Surveillance Report, February 2019

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. 2019

Glossary of Terms/Acronyms

Affirmation See GCR Rating Scales, Symbols and Definitions.
Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
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 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.
Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Cash Funds that can be readily spent or used to meet current obligations.
Commercial Paper Commercial paper is a negotiable instrument with a maturity of less than one year.
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.
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.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
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.
Downgrade The rating has been lowered on its specific scale.
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.
Environment The surroundings or conditions in which an entity operates (Economic, Financial, Natural).
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. In insurance, it refers to an indvdual or company’s vulnerability to varous risks
Facility The grant of availability of money at some future date in return for a fee.
Hybrid A form of security that has characteristics of various types of transaction or product.
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.
Issuer The party indebted or the person making repayments for its borrowings.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Loss 1. A tangible or intangible, financial or non-financial loss of economic value. 2. The happening of the event for which insurance pays (insurance).
Market An assessment of the property value, with the value being compared to similar properties in the area.
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.
Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
Origination A process of creating assets.
Pool An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.
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.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rated Securities Debt securities that have been accorded a credit rating.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Securitisation A process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
Security One of various instruments used in the capital market to raise funds.
Senior A security that has a higher repayment priority than junior securities.
Short Term Current; ordinarily less than one year.
Structured Finance A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
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.
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.

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; 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 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 face-to-face 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 December 2019.



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