Johannesburg, 1 July 2019 – GCR Ratings (“GCR”) has affirmed the public long-term credit ratings of ‘AAA(ZA)(sf)’ with a stable outlook assigned to the Class A Notes listed below, issued by Compass Securitisation (RF) Limited (“Compass”, or the “Issuer).
|Security Class||Stock Code||Amount||Rating class||Rating scale||Rating||Outlook / Watch|
|Class A4||CSA04U||R240,000,000||Issue Long Term||National||AAA(ZA)(sf)||Stable Outlook|
|Class A5||CSA05U||R110,000,000||Issue Long Term||National||AAA(ZA)(sf)||Stable Outlook|
The ratings accorded to the Class A Notes relate to timely payment of interest and ultimate payment of principal by the Final Redemption Date of each Class of Notes. The ratings exclude an assessment of the ability by the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
Compass is a ZAR1bn Equipment Receivables Backed Note Programme established in 2014. The Issuer issued an aggregate of R240m in Class A4 Notes and R103m in subordinated, unrated Class D4 Notes in June 2017 with the proceeds of the Notes issuance used to refinance existing notes which came to maturity in June 2017. Subsequently, in December 2018, the Issuer issued an additional R110m in Class A5 Notes and R47m in subordinated, unrated Class D5 Notes.
The calculation of the ‘aggregate net defaults for the last 12 months’ performance trigger was amended to be consistent with the transaction documents. Subsequent to the amendment being incorporated in the transaction documents, the reported aggregate defaults were relatively higher, albeit the trigger has never been reported in breach.
The Transaction performed in line with GCR’s expectations. No performance triggers or portfolio covenants were breached during the period under review. GCR calculates the excess spread in the structure at the end of each quarter based on the revenue collections and senior costs incurred in the quarter. Based upon this calculation, the transaction had negative excess spread in December 2018, inherent as a result of the Originators’ collections procedures towards financial year end. Nonetheless, the Issuer reverted to a positive excess spread in the subsequent quarter (March 2019).
For more information in respect of the transaction and GCR’s analysis, please refer to the Compass Securitisation (RF) Limited – New Issuance Report (Dec’ 2018), as well as the Compass Securitisation (RF) Limited – New Ratings Report (Jun’ 2017). GCR analysed the transaction by applying its Global Master Structured Finance Rating Criteria (Sep’18) and Global Consumer Asset-Backed Securitisation Rating Criteria (Sep’18); with reference to its updated cash flow model report.
|Primary Analyst||Tinashe Mujuru||Structured Finance Analyst|
|Johannesburg, ZA||tinashem@GCRratings.com||+27 11 784 1771|
|Secondary Analyst||Charlene Chipoyera||Structured Finance Analyst|
|Johannesburg, ZA||charlenec@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
|Global Master Structured Finance Rating Criteria, Sep’ 2018|
|Global Consumer Asset-Backed Securitisation Rating Criteria, Sep’ 2018|
|Compass Securitisation (RF) Limited – New Issuance Report, Dec’ 2018|
|Compass Securitisation (RF) Limited – New Ratings Report, Jun’ 2017|
Compass Securitisation (RF) Limited
|Security class||Stock code||National Long-Term Rating||Outlook||Initial Rating|
|Class A||CSA04U||AAA(ZA)(sf)||Stable||Jun. 2017|
|Class A||CSA05U||AAA(ZA)(sf)||Stable||Dec. 2018|
|Security class||Stock code||National Long-Term Rating||Outlook||Last Rating|
|Class A||CSA04U||AAA(ZA)(sf)||Stable||Dec. 2018|
|Class A||CSA05U||AAA(ZA)(sf)||Stable||Dec. 2018|
Glossary of Terms/Acronyms
|Amortisation||From a liability perspective, the paying off of debt in a series of instalments over a period of time. From an asset perspective, the spreading of capital expenses for intangible assets over a specific period of time (usually over the asset’s useful life).|
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Bullet Maturity||The settlement of a security at maturity in a single principal repayment.|
|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.|
|Claim||1. A request for payment of a loss, which may come under the terms of an insurance contract (insurance). 2. A formal request or demand (corporate finance).|
|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.|
|Creditor||A credit provider that is owed debt obligations by a debtor.|
|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.|
|Enforcement||To make sure people do what is required by a law or rule et cetera.|
|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.|
|Issue Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|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.|
|Public Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Ranking||A priority applied to obligations in order of seniority.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Receivables||Any outstanding debts, current or not, due to be paid to a company in cash.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|Refinance||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|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.|
|Reserve||(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.|
|Secured Creditor||A creditor that has specific assets pledged as collateral that will receive the proceeds in the event of default.|
|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.|
|Stock Code||A unique code allocated to a publicly listed security.|
|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.|
|Subordination||The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches.|
|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.|
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Salient Points 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 credit rating document.
The credit rating has been disclosed to the Arranger. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
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 rating included:
- Issuer Securitisation reports for the period December 2015 to 30 April 2019;
- Final General Amendment Agreement; and
- Collections Breakdown up to May 2019.