Johannesburg, 2 October 2020 – GCR Ratings (“GCR”) has affirmed the long-term issue credit ratings assigned to the Notes by the South African Securitisation Programme (RF) Limited – Series 2 (“SASP 2” or the “Issuer”) with Stable Outlooks.
|Security Class||Stock Code||Amount||Rating class||Rating scale||Rating||Outlook / Watch|
|Class A3||LRFA3||R280,000,000||Long Term issue||National||AAA(ZA)(sf)||Stable Outlook|
|Class B3||LRFB3||R52,500,000||Long Term issue||National||AA+(ZA)(sf)||Stable Outlook|
|Class C3||LRFC3||R17,500,000||Long Term issue||National||AA-(ZA)(sf)||Stable Outlook|
The rating action reflects the largely unchanged capital structure post the annual review, the asset performance and our credit and cash flow analysis using the most recent collateral data at July 2020. GCR also performed a re-rating exercise given the amended credit risk assumptions. The ratings also reflect the credit enhancement levels which are modelled as per the 10% overcollateralisation covenant.
The transaction is currently in its Revolving Period. However, as per GCR’s Criteria for Rating Structured Finance Transactions, the cash flows were modelled as per the Pre-Enforcement Priority of Payments applicable in an Amortisation Period.
GCR ran several stress scenarios to gauge the resilience of the ratings in light of the current uncertain economic environment amid the COVID-19 pandemic. The results suggest that the Class A and Class B Notes have sufficient credit enhancement to withstand additional stresses, while the rating of the Class C Notes are sensitive to additional stresses over short to medium term horizons.
The public credit ratings assigned to the Class A Notes relate to timely payment of interest and ultimate payment of principal by their Final Maturity Date of each Class of Notes respectively, while the ratings assigned to the Class B and Class C Notes relate to ultimate payment of interest and ultimate payment of principal by their Final Maturity Date. The ratings exclude an assessment of the ability of the Issuer to pay either any early repayment or default interest rate penalties.
SASP 2 is the second of three series of the R5bn Multi-Seller Segregated Asset-Backed Note Programme of rental and equipment lease financed assets originated by Sasfin Bank Ltd. SASP 2 is primarily made up of capital asset leases, while SASP 1 and SASP 3 are primarily made up of office equipment leases.
The capital structure has remained unchanged over the review period. GCR modelled a starting asset balance of R385m in performing assets in order to meet the 10% overcollateralisation requirement plus the R12.4m defaults as at July 2020 which sums up to R397.4m. This translates into an asset to notes ratio of 1.14x (actual including cash at July 2020: 1.31x)
Our view of the counterparty risk remains the same as at the June 2019 review, were the risk was assessed to be in line with GCR’s criteria. We note the servicing risk posed by the COVID-19 pandemic and the related lockdown and social distancing practises. Servicing is being done remotely and by the end of July 2020, this had no material impact on the overall collections and servicing process.
Amendments to the transaction documents relating to permitted investments which need both investor and JSE approval, have not yet been done as previously anticipated by the Issuer. This is as the Issuer is awaiting a conclusion to the anticipated changes of the JSE Debt Listing Requirements. The Issuer has however, provided GCR a letter which illustrates how permitted investments are managed. We deem the current procedure to be in line with GCR’s criteria.
The cumulative default and recovery data underwent a clean-up exercise by Sasfin Bank during the review period. Post the exercise and in light of the current economic environment, the default vintage curves (data between September 2009 and June 2020) show some deterioration in performance.
It should be noted however, that given the obligor concentration limits allowed under the transaction documents, such concentrations drive the stressed cumulative default assumptions. GCR has observed an increasing trend in concentration metrics through its Monitoring process, albeit the trend is still in line with that observed at the November 2020 review. The concentrations remain below the modelled assumptions and are in line with covenants. Given the observed concentration metrics has not significantly changed, the assumptions modelled at the June 2019 review were maintained.
The recoveries data show marginal deterioration in performance. However, the impact of lower volatility in the more recent recoveries data results in a higher recovery rate base case. GCR has amended its recovery rate base case to reflect the most recent data.
The table below compares the calculated net loss rate for the current (September 2020 review) and the November 2019 review at the different rating scenarios.
|Current review||November 2019 review|
|Probability of default||18.20%||18.20%|
|Probability of default||15.60%||15.60%|
|Probability of default||13.06%||13.06%|
Source: Sasfin data and GCR calculations
Cash Flow Analysis
GCR’s cash flow analysis reflects the application of the different stress levels in an amortising Pre-Enforcement scenario at each rating level as per GCR’s Criteria for Rating Consumer Asset Backed Securities, GCR’s assessment of the transaction’s capital structure, the asset performance and GCR’s cash flow assumptions.
The weighted average margin over Prime that is earned on the floating assets was sized to reflect the 3.5% covenant, in line with other transactions (previously reflected the weighted average from the pool cut). In addition, to be prudent GCR assumes the assets are split into 10% fixed rate and 90% floating rate assets, albeit cognisance is taken that there were no fixed rate assets at July 2020 and this has been the case historically. The transaction currently does not have a covenant to limit the amount of fixed rate assets. The fixed rate was estimated as Prime rate plus the floating assets weighted average margin of 3.5%.
The analysis indicates that there is adequate credit enhancement for the Class A Notes to withstand the assumed credit and cash flow risks under a ‘AAA(ZA)(sf)’ rating scenario. The credit enhancement available to the Class B Notes is adequate to withstand the credit and cashflow risks in a ‘AA+(ZA)(sf)’ rating scenario. While, the credit enhancement available to the Class C Notes is adequate to withstand the credit and cashflow risks in a ‘AA-(ZA)(sf)’ rating scenario.
GCR ran liquidity and credit stress scenarios, all else being equal, to assess ratings stability of further possible cashflow disruption as a result of the COVID-19 pandemic. Further analysis stressed the collections for three-month, assuming 10% haircuts on the cashflows during this period.
In relation to the credit risk, we stressed the default and recoveries base case. We also ran a scenario were the default vector was front loaded to assess the impact of a potential increase in defaults in the short to medium term.
The results suggest that the Class A and Class B Notes have sufficient credit enhancement to withstand additional stresses, while the rating of the Class C Notes are sensitive to additional stresses over short to medium term horizons.
|Rating Outcome||Class A Notes: AAA|
|-15% Recoveries||-30% Recoveries|
|90% collections in next 3 months||AAA||AAA||AAA|
|Front Loaded PD vector||AAA||AAA||AAA|
|Rating Outcome||Class B Notes: AA+|
|-15% Recoveries||-30% Recoveries|
|90% collections in next 3 months||AA-||AA-||AA-|
|Front Loaded PD vector||AA+||AA+||AA+|
|Rating Outcome||Class C Notes: AA-|
|-15% Recoveries||-30% Recoveries|
|90% collections in next 3 months||BB-||BB-||BB-|
|Front Loaded PD vector||A-||A-||A-|
Source: GCR Ratings
GCR performed an operational review with Sasfin in June 2020. There were no major changes or proposed changes to the operations, policies and/ or systems. GCR remains comfortable with the Servicer’s ability to perform its obligations. We note that the implementation of Leasewave, the new debtors’ ledger system which is a central house of data as opposed to three systems previously used has been completed and so far, all issues that resulted from the transition have been resolved.
Sasfin Bank’s strategy is to continue with its conservative originations approach. Origination volumes have declined in light of the current operating environment and are expected to remain low. To mitigate the risk posed to the SASP transactions (which are currently revolving) the Bank currently has a buffer estimated to cover 5 months of purchases.
Surveillance and Monitoring
GCR continuously monitors the performance of SASP 2 and publishes the Monitoring Dashboards on its website. The most recent Dashboard covers the period from July 2019 to July 2020.
|Primary Analyst||Gary Nyoni||Structured Finance Analyst|
|Johannesburg, ZA||GaryN@GCRratings.com||+27 11 784 1771|
|Secondary Analyst||Siyuan Lu||Structured Finance Analyst|
|Johannesburg, ZA||Siyuanl@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
|Criteria for Rating Structured Finance Transactions, Sep 2018|
|Criteria for Rating Consumer Asset Backed Securities, Sep 2018|
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Financial Institutions, May 2019|
|GCR Financial Institution Sector Risk Scores, April 2020|
|Sasfin Bank Ltd July 2020 ratings review|
|SASP Series 2 New Issuance Report, November 2019|
|SASP Series 2 Surveillance Report, June 2019|
|Security class||Stock code||Rating||Outlook||Initial & Last Rating|
|Class A3||LRFA3||AAA(ZA)(sf)||Stable||Nov. 2019|
|Class B3||LRFB3||AA+(ZA)(sf)||Stable||Nov. 2019|
|Class C3||LRFC3||AA-(ZA)(sf)||Stable||Nov. 2019|
|Agency||An insurance sales office which is directed by an agent, manager, independent agent, or company manager.|
|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.|
|Amortisation Period||A period that may follow the Revolving Period of a transaction, during which the outstanding balance of the related securities may be partially repaid.|
|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 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.|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Capital||The sum of money that is invested to generate proceeds.|
|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.|
|Collateral||Asset provided to a creditor as security for a loan or performance.|
|Concentrations||A high degree of positive correlation between factors or excessive exposure to a single factor that share similar demographics or financial instrument or specific sector or specific industry or specific markets.|
|Contract||An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.|
|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.|
|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 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.|
|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.|
|Enforcement||To make sure people do what is required by law or rule et cetera.|
|Environment||The surroundings or conditions in which an entity operates (Economic, Financial, Natural).|
|Exercise||To exercise an option is to use the right of the holder to buy or sell the underlying asset on which the option is based at the strike price.|
|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. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Fix||The setting of a currency or commodity price for trade at a future date.|
|Haircut||The percentage by which the market value of an asset is reduced. The size of the haircut reflects the expected ease of selling the asset and the likely reduction necessary to realised value relative to the fair value.|
|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.|
|Lease||Conveyance of land, buildings, equipment or other assets from one person (lessor) to another (lessee) for a specific period of time for monetary or other consideration, usually in the form of rent.|
|Liability||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|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.|
|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.|
|Loss||1. A tangible or intangible, financial or non-financial loss of economic value. 2. The happening of the event for which insurance pays (insurance).|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Net Loss||The amount of loss sustained by an insurer after giving effect to all applicable reinsurance, salvage, and subrogation recoveries.|
|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.|
|Origination||A process of creating assets.|
|Performing||An obligation that performs according to its contractual obligations.|
|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.|
|Prepayment||Any unscheduled or early repayment of the principal of a mortgage/loan.|
|Prime Rate||The benchmark interest rate that banks charge their customers.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Probability||The likelihood or relative frequency of an event expressed in a number between zero and one. The throw of a die is an example. The probability of throwing five is found by dividing the number of faces that have a five (1) by the total number of faces (6). That is a probability of one-sixth or one divided by six, which is .17. See also Degree of Risk, Law of Large Numbers, and Odds.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|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.|
|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.|
|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.|
|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.|
|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.|
|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.|
|Weighted Average||An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities.|
|Weighted||The weight that a single obligation has in relation to the aggregated pool of obligations. For example, a single mortgage principal balance divided by the aggregated mortgage pool principal balance.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the rating process was 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to the rated party. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings. The rated entity participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible:
- Default, recoveries and prepayments data up to June 2020;
- Other miscellaneous data