Johannesburg, 29 June 2015—Global Credit Ratings has affirmed the primary and special servicer ratings assigned to MBD Credit Solutions Holdings (Pty) Limited of SQ2+(ZA) and SQ1-(ZA) respectively; with the outlooks accorded as Positive.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above servicer quality (“SQ”)* rating(s) to MBD Credit Solutions Holdings (Proprietary) Limited (“MBDCS”, “the group”) based on the following key criteria:
The servicer quality ratings and ‘Positive’ outlooks reflect MBDCS’ strong internal control environment, technology and resource capability/capacity. The primary servicer rating also reflects the group’s expanding cross-sector loan/debtor administration experience, while the special servicer rating considers its ability to collect/work out arrear loans (on an agency and principal basis).
Capacity/competency of management and staff was stable, despite some changes in executive management. Internal appointments and promotions preserved institutional memory, while external leadership additions brought broader skills to the existing team. Enhancements to staff training, benefits and incentives improved alignment of staff and group strategic goals.
The group’s internal systems and controls remained robust, with strong oversight, management, and quality control evident across operations. Enhancements to functional/financial reporting, and more streamlined organisational/reporting structures were noted.
Bespoke and standard information technology are integrated to optimise processing speed/efficiency, stability, connectivity, data accuracy, and security, while exogenous infrastructure challenges require high levels of duplication/redundancy. Enhancements to system infrastructure, security and management information systems are delivered regularly.
MBDCS’ financial condition was solid, despite the collections operating environment remaining challenging, with muted economic growth, high levels of consumer stress/indebtedness, and myriad regulatory changes increasing the effort and cost of collection. That said, MBDCS has continued to identify new opportunities and grow revenue, while reducing its cost burden, and increasing financial flexibility, resulting in a strong financial condition assessment.
Collections volumes reflected serviced asset growth, while gross margins were maintained. Rising public sector collections in F14 highlight this business’ potential contribution.
Continued improvement in market positioning (in particular in debtor administration), the portfolio collections track record (principal and agency collections) and systems, could have a positive impact on the ratings. Negative pressure on the ratings could arise from lower than anticipated collections, diminished business volumes/financial stability, evidence of systems challenges, loss of institutional memory through staff turnover, and significant adverse regulatory changes.
* Note that servicer quality ratings are classified as non-credit ratings (refer to GCR’s published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (March 2011)|
|Servicer quality (combined): SQ2(ZA)|
|Rating outlook: Stable|
|Initial rating (June 2013)||Last rating (June 2014)|
|Primary Servicer: SQ2+(ZA)||Primary Servicer: SQ2+(ZA)|
|Special Servicer: SQ1-(ZA)||Special Servicer: SQ1-(ZA)|
|Rating outlook/s: Stable||Rating outlook/s: Stable|
|Primary Analyst||Committee Chairperson|
|Omega Collocott||Jennifer Mwerenga|
|Sector Head: Financial Institution Ratings||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Criteria for Rating Structured Finance Servicers, updated February 2015
MBDCS rating reports (2011-14)
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. 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.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable rating document.
The ratings were solicited by, or on behalf of, MBD Credit Solutions Holdings (Proprietary) Limited, and GCR has been compensated for the provision of the ratings.
MBD Credit Solutions Holdings (Proprietary) Limited 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 ratings were disclosed to MBD Credit Solutions Holdings (Proprietary) Limited with no contestation of/changes to the ratings.
The information received from MBD Credit Solutions Holdings (Proprietary) Limited and other reliable third parties to accord the ratings included the latest available audited annual financial statements at 30 September 2014 (plus four years of comparative numbers), most recent year to date management accounts up to 31 March 2015, as well as detailed information related to the group, its subsidiaries and operations.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|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/or 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||Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Fraud||The unlawful and intentional making of a misrepresentation which causes actual and or potential prejudice to another.|
|Income Statement||A summary of all the expenditure and income of a company over a set period.|
|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.|
|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.|
|Margin||The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|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.|
|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.|
|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).|
|REPO||In a REPO one party sells assets or securities to another and agrees to repurchase them later at a set price on a specified date.|
|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.|
|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.|