Johannesburg, 27 August 2015 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term credit ratings accorded to the following notes (collectively the ‘Notes’) issued by Fintech Receivables 2 (RF) Limited (‘FR2’ or the ‘Transaction’) on 15 August 2013.
- R519m Class A floating rate notes, stock code FR2A4A, due 15 September 2023: ‘AAA(ZA)(sf)’, Outlook Stable;
- R54m, Class B floating rate notes, stock code FR2A4B, due 15 September 2023: ‘AA(ZA)(sf)’, Outlook Stable;
- R49m, Class C floating rate notes, stock code FR2A4C, due 15 September 2023: ‘A(ZA)(sf)’, Outlook Stable; and
- R43m, Class D floating rate notes, stock code FR2A4D, due 15 September 2023: ‘BBB(ZA)(sf)’, Outlook Stable.
FR2 is a public securitisation of equipment leases originated by Fintech Underwriting (Pty) Limited (‘FUN’), a wholly-owned subsidiary of Fintech Propriety Limited (‘Fintech’). The Notes were issued together with a subordinated loan of R56.5m which was provided to FR2 by Fintech. The proceeds of the notes issued and the subordinated loan were used to fund FR2’s portfolio of equipment leases.
On 30 June 2015, Sasfin Bank concluded an agreement with Fintech to acquire Fintech as a wholly owned subsidiary of Sasfin. The acquisition is expected to have no material impact on the performance or the rating of the Notes.
The rating of the Notes is derived by applying GCR’s Global Consumer ABS Rating Criteria and Global Structured Finance Rating Criteria. GCR has reviewed the performance of leases originated by FUN in respect of FR2 from Q1 2004, however the ratings above relate to a review of the Transaction’s performance over the period 1 January 2015 to 30 June 2015 (‘the review period’). For more information, please read the Fintech Receivables 2 (RF) Limited – August 2015 Surveillance Report to be published in August 2015. The Surveillance Report is available to subscribers of GCR’s Structured Finance subscription service.
GCR noted that no Stop Issuance Events or Stop Purchase covenants were breached over the review period. The Arrears Reserve was maintained well above the required level of 75%. In percentage terms, the Arrears Reserve accounted for 100% of aggregate nominal NPLs and legal accounts throughout the review period (the only inconsistency occurred in May 2015 where it registered at 99.4% which was still comfortably above the 75% covenant limit). There were no concentration criteria breaches during the review period.
Delinquency ratio statistics showed increased stability over the review period recording a high of 0.68% in January 2015 and achieving a lower review period average of 0.57% (previously 1.2%). The level of NPLs as a percentage of the total portfolio exposure showed an improvement compared to the previous review period (July 2014 – December 2014). The NPLs were recorded at 2% of exposure as at June 2015 which represents an improvement of 60 basis points from the last review period’s closing, which was 2.6% at December 2014.
The final, public rating accorded to the ‘AAA(ZA)(sf)’ rated securities relates to timely payment of interest and ultimate payment of principal, whilst the ratings on all other securities relate to ultimate payment of interest and ultimate payment of principal. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
NATIONAL SCALE RATINGS HISTORY
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Head of Structured Finance
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Structured Finance Rating Criteria – (February 2015);
- Global Consumer ABS Rating Criteria (April 2015);
- FR2 New Issuance Report (August’13).
- FR2 Surveillance Report (Feb’15).
RATING LIMITATIONS AND DISCLAIMERS
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|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.|
|Arrears||General term for non-performing obligations, i.e. obligations that are overdue.|
|Arrears Reserve||An accounting provision made in a reserve fund for arrears.|
|Basis Points||One-hundredth of a percent.|
|Claim||A formal request or demand.|
|Conduit||A commercial lending entity that is established to purchase assets to securitise.|
|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||A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company|
|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 probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|debt||An obligation to repay a sum of money.|
|Debtor||The party indebted or the person making repayments for its borrowings.|
|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.|
|Delinquency||When a receivable is overdue and not paid on its payment due date.|
|Enforceable||To make sure people do what is required by a law or rule et cetera.|
|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.|
|Floating Rate Notes||Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|JIBAR||Johannesburg Interbank Agreed Rate. A reference rate.|
|Junior||A security that has a lower repayment priority than senior securities.|
|Lease||Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|Lessee||The party that enjoys temporary use of a corporeal thing.|
|Lessor||The owner or agent that acts on behalf of the owner of property that grants the temporary use of a corporeal thing.|
|Liability||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Lien||A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|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.|
|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.|
|Long Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|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. 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.|
|Mortgagee||A creditor under a mortgage agreement.|
|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.|
|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.|
|Obligor||The party indebted or the person making repayments for its borrowings.|
|Performing||An obligation that performs according to its contractual obligations.|
|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.|
|Property||Movable or immovable asset.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|Ranking||A priority applied to obligations in order of seniority.|
|Rated Securities||Debt securities that have been accorded a credit rating.|
|Receivables||General term for economic benefit derived from an asset.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|Reference Rate||A rate that is the basis of the calculation such as JIBAR.|
|Rent||Payment from a lessee to the lessor for the temporary use of an asset.|
|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 Fund||A funded account available for use by a Special Purpose Vehicle for one or more specified purposes. A reserve fund is often used as a form of credit enhancement. Typically accumulated over time, through excess cash flows.|
|Securities||Various instruments used in the capital market to raise funds.|
|Securitisation||Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.|
|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.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Servicer||A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.|
|Servicing||The calculation of interest and repayments, collection of repayments, advancing of loans, foreclose procedures, maintaining records and seeing that the proceeds of each loan are passed on to the respective party.|
|Short Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Special Purpose Vehicle||An entity that is created to fulfill specific objectives. Normally insolvency remote and created to isolate financial risk.|
|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.|
|Subordinated Loan||A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche.|
|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.|
|Tranche||In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.|
|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.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
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 credit rating document.
The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The rating/s above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.
The information received from the Arranger and other reliable third parties to accord the credit ratings included:
- Portfolio performance data relating to the underlying equipment lease portfolio covering the period January 2004 – June 2015;
- The latest Issuer’s audited annual financial statements for the year ending 30 June 2015;
- An overview of the Issuer’s lease portfolio as per 30 June 2015;
- Monthly management reporting packs; and
- Quarterly investor reporting packs.
GCR affirms the final, public ratings accorded to the Notes issued by Fintech Receivables 2 (RF) Limited