Announcements Rating Alerts Structured Finance

GCR affirms ratings on Compass Securitisation (RF) Limited. Outlook Stable.

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.

Rating Rationale

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.

Analytical Contacts

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

Ratings History

 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.

For a detailed glossary of terms utilized in this announcement please click here

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.


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.