Johannesburg, 18 March 2021 – GCR Ratings (“GCR”) affirmed the long-term issue credit rating of the Class A1 Notes and upgraded the long-term issue credit rating of the Class B Notes issued by TUHF Urban Finance (RF) Ltd (the “Issuer”), under its R2bn Mortgage Loan-Backed Securitisation Scheme (the “Transaction”). This follows GCR’s annual surveillance of the Transaction.
|Security Class||Stock Code||Amount Outstanding||Rating class||Rating scale||Rating||Outlook||Rating Action|
|Class A1 Notes||TU1A11||R444,364,382||Issue Long Term||National||AA-(ZA)(sf)||Stable||Affirmation|
|Class B Notes||TU1B11||R51,546,268||Issue Long Term||National||BBB(ZA)(sf)||Stable||Upgrade|
The credit ratings accorded to the Class A1 Notes relate to timely payment of interest and ultimate payment of principal by their Final Redemption Date. The ratings accorded to all the other securities relate to ultimate payment of interest and principal by their Final Redemption Dates. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
An initial issuance of R500m of Notes occurred in December 2018, with a further issuance of R150m having taken place in October 2019. The Transaction’s Revolving Period ended on 31 January 2020 as scheduled. The first redemption of Notes occurred on the following Payment Date of 30 April 2020. Since then, Notes redemption has taken place on each quarterly Payment Date. To date, R72.3m of Notes have been redeemed, out of the R650m issued. Quarterly redemption of the Notes of all four Classes takes place on a pro rata basis after Notes interest is paid. Such pro rata redemption implies that levels of credit enhancement available through subordination for each Class of Notes has remained static.
The asset portfolio characteristics have remained within covenant levels.
Arrears in the portfolio did not increase significantly over the review period, including over the period of the COVID-19 crisis and associated lockdowns, and remained below pre-crisis historical maxima. Arrears of between two and three months reached a COVID period maximum of 5.88% of total portfolio outstanding balance in October 2020, compared to an overall maximum of 8.55% in March 2019. Arrears of greater than three months reached 5.11% in August 2020, compared to a maximum of 5.15% in February 2020.
Over the crisis period, TUHF selectively granted temporary relief to some of its qualifying borrowers. Such relief resulted in instalments not being charged against a portion of the loans in the Transaction’s portfolio for one or more of the months between April and August 2020. Loans that were granted such relief reached a maximum of 32% of the number of loans in the portfolio in June 2020. By September 2020, such payment relief had reduced to a negligible level and collection rates resumed to pre-COVID levels of close to 100%.
The lower-than-normal collections led to thinner-than-usual excess spread earned over the period between May and August 2020. Excess spread, calculated as (1) interest earned on the portfolio assets, plus (2) interest earned on retained cash, less (3) senior expenses, less (4) interest accrued on the Class A,1, B and D Notes, was nevertheless positive in all months excluding July 2020. For the full quarter ending 30 September 2020, however, excess spread was positive and sufficient to pay senior expenses and interest due on all Classes of Notes, including Class E. Since September, monthly excess spread has been recorded at pre-COVID levels.
GCR performed a re-rating of the Transaction and modelled the Transaction’s cash flows according to its Criteria for Rating Consumer Asset Backed Securities, updated September 2018, using the latest data it received from the Issuer. Previously, for the initial ratings accorded in December 2018 and for those affirmed and accorded in October 2019, GCR used a hybrid approach, whereby portfolio defaults were modelled according to the Criteria for Rating Consumer Asset Backed Securities and recoveries were modelled based on the Criteria for Rating Residential Mortgage Backed Securities, updated November 2018. However, for this surveillance, GCR altered its approach and modelled recoveries too according to the historical approach as per the Criteria for Rating Consumer Asset Backed Securities. This is in consideration of the minimal portion of TUHF’s historical recoveries that include foreclosures, as well as GCR’s understanding of the reasonable system of portfolio management of an asset pool such as TUHF’s. In deriving base cases for its cash flow model, GCR used TUHF historical data spanning the period between November 2003 and August 2020.
The ratings accorded are a direct result of the cash flow model outcome, where Class A1 and Class B Notes interest and principal is paid in full in stress scenarios commensurate with their accorded ratings as per GCR’s Criteria for Rating Consumer Asset Backed Securities, updated September 2018. GCR considered, inter alia, the Transaction’s relatively stable performance over the review period and its apparent weathering of the COVID storm in according the ratings. The model outcome leads to the affirmation of the rating of Class A1 Notes at AA-(ZA)(sf) and the upgrade by one notch of the rating of the Class B Notes, from BBB-(ZA)(sf) to BBB(ZA)(sf).
|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 & Securitisation|
|Johannesburg, ZA||Yohan@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for Rating Structured Finance Transactions, updated September 2018|
|Criteria for Rating Consumer Asset Backed Securities, updated September 2018|
|Criteria for Rating Financial Institutions, May 2019|
|TUHF Ltd, Rating Announcement, December 2019|
TUHF Urban Finance (RF) Ltd
|Security class||Stock code||Review||Rating scale||Rating class||Outlook||Date|
|Class A1 Notes||TU1A11||Initial||National||AA-(ZA)(sf)||Stable||Dec. 2018|
|Class B Notes||TU1B11||Initial||National||BBB-(ZA)(sf)||Stable||Dec. 2018|
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT
|Advance||A lending term, to transfer funds from the creditor to the debtor.|
|Affirmation||See GCR Rating Scales, Symbols and Definitions.|
|Arrears||An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.|
|Asset Backed Securities||Securitisation: debt securities issued that are backed or covered by a pool of assets or receivables (Auto loans and leases, consumer loans, commercial assets, credit cards, mortgage loans).|
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Borrower||The party indebted or the person making repayments for its borrowings.|
|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.|
|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 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Excess Spread||The net weighted average interest rate receivable on a pool of assets being greater than the weighted average interest rate payable for the debt securities.|
|Foreclosure||Legal proceedings initiated by a creditor to repossess the collateral for obligations that have defaulted.|
|Instalment||Payment made to honour obligations with 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 3.) To reduce the amount of the principal debt.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|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.|
|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.|
|Mortgage Loan||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.|
|Payment Date||The date on which the payment of a coupon or dividend is made.|
|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.|
|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.|
|Pro Rata||(1) Distribution of the amount of insurance under one policy among several objects or places covered in proportion to their value or the amounts shown. (2) Distribution of liability among several insurers having policies on a risk, usually in the proportion that the amount of coverage in each policy bears to the total amount of coverage in all policies.|
|Property||Movable or immovable asset.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|Repayment||Payment made to honour obligations with 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.|
|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.|
|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.|
|Subordination||The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches.|
|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.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
|Upgrade||The rating has been raised on its specific scale.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings were 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.
Issuer participated in the rating process via management meetings, teleconferences and/or other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Issuer and other reliable third parties to accord the credit ratings included:
- TUHF performance data up to August 2020
- Investor reports out to December 2020
- Management accounts up to December 2020
- TUHF Urban Finance pool cut, January 2021