Announcements Rating Alerts Structured Finance

GCR affirms the ratings assigned under the South African Securitisation Programme (RF) Ltd – Series 3. Outlook, Stable.

Rating Action

Johannesburg, 20 July 2020 – GCR Ratings (“GCR”) has affirmed the issue credit ratings assigned to the Notes issued under the South African Securitisation Programme (RF) Limited – Series 3 (“SASP 3” or the “Issuer”) with Stable Outlooks.

Security Class Stock Code Amount Rating class Rating scale Rating Outlook / Watch
Class A2 SLRA2 R276,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class A3 SLRA3 R357,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class A4 SLRA4 R125,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class A5 SLRA5 R259,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class B2 SLRB2 R45,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class B3 SLRB3 R31,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class B4 SLRB4 R37,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class B5 SLRB5 R30,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class C2 SLRC2 R20,000,000 Issue Long Term National AA+(ZA)(sf) Stable Outlook
Class C3 SLRC3 R25,000,000 Issue Long Term National AA+(ZA)(sf) Stable Outlook
Class C4 SLRC4 R25,000,000 Issue Long Term National AA+(ZA)(sf) Stable Outlook
Class C5 SLRC5 R35,000,000 Issue Long Term National AA+(ZA)(sf) Stable Outlook

The rating action reflects the unchanged capital structure post the annual review, the asset performance and our credit and cash flow analysis using the most recent collateral data at May 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 8% 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 ratings of the Class C Notes are sensitive to moderate 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 Redemption 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 Redemption Date. The ratings exclude an assessment of the ability of the Issuer to pay either any early repayment or default interest rate penalties.

SASP 3 is the third 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 1 and SASP 3 are primarily made up of office equipment leases, while SASP 2 is primarily made up of capital asset leases.

Rating Rationale

Capital Structure

The capital structure has remained unchanged over the review period. GCR modelled a starting asset balance of R1,366.2m in performing assets in order to meet the 8% overcollateralization requirement plus the R50.2m defaults as at May 2020 which sums up to R1,416.5m. This translates into an asset to notes ratio of 1.12x (actual including cash at May 2020: 1.19x).

Counterparty Risk

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 May 2020, this had no material impact on the overall collections and servicing process.

Sasfin Bank Ltd in its capacity as Servicer appointed Singular Systems Pty Ltd as the SASP 3 Stand-by Servicer effective November 2019. GCR is comfortable with Singular Systems Pty Ltd.’s ability to step in as Back-up Servicer.

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.

Credit Risk

The cumulative default and recovery data went through 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 March 2002 and May 2020) show some moderate deterioration in performance. The recoveries data shows some improvement however, this is largely a function of the clean-up. GCR has amended its credit risk assumptions to reflect the most recent data, translating into a calculated net loss rate of 2.61% (previous: 2.90%).

  Current Previous
Default base case 3.73% 3.53%
Recovery base case 30.05% 17.91%
Calculated Net Loss Rate 2.61% 2.90%

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.

GCR’s analysis and cash flow model indicate that there is sufficient credit enhancement for the Class A and Class B Notes to withstand the assumed credit and cash flow risks under a ‘AAA(ZA)(sf)’ rating scenario. The credit enhancement available to the Class C Notes is sufficient to mitigate credit and cash flow risks in a ‘AA+(ZA)(sf)’ rating scenario.

Ratings Stability

GCR ran liquidity and credit stress scenarios, all else being equal, to assess how resilient the ratings are in the event of possible cashflow disruption as a result of the COVID-19 pandemic. Further analysis stressed the collections for three and six-month periods, assuming certain haircuts on the cashflows during these periods.

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. We did not back load the recovery vector given the results suggest the ratings are more sensitive to defaults.

The results suggest that the Class A and Class B Notes have sufficient credit enhancement to withstand additional stresses, while the ratings of the Class C Notes are sensitive to moderate additional stresses over short to medium term horizons.

 Rating Outcome Class A Notes – AAA
+15% Defaults +30% Defaults
AAA AAA
-15% Recoveries AAA AAA AAA
-30% Recoveries AAA AAA AAA
80% collections in next 3 months AAA AAA AAA
90% collections in next 6 months AAA AAA AAA
Front Loaded PD vector AAA AAA AAA
 Rating Outcome Class B Notes – AAA
+15% Defaults +30% Defaults
AAA AAA
-15% Recoveries AAA AAA AAA
-30% Recoveries AAA AAA AAA
80% collections in next 3 months AAA AA+ AA-
90% collections in next 6 months AAA AA+ AA-
Front Loaded PD vector AAA AAA AAA
 Rating Outcome Class C Notes – AA+
+15% Defaults +30% Defaults
AA- A+
-15% Recoveries AA+ A+ A+
-30% Recoveries AA A+ A
80% collections in next 3 months BB+ BB- B+
90% collections in next 6 months BB+ BB BB-
Front Loaded PD vector AA A+ A

Source: GCR Ratings

Operational Review

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 ten months of purchases.

Surveillance and Monitoring

GCR continuously monitors the performance of SASP 3 and publishes the Monitoring Dashboards on its website. The most recent Dashboard covers the period from May 2019 to May 2020.

Analytical Contacts

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 3 Surveillance Report, July 2020
SASP Series 3 New Issuance Report, August 2019
SASP Series 3 Surveillance Report, June 2019
SASP Series 3 New Issuance Report, September 2016

Ratings History

South African Securitisation Programme (RF) Limited – Series 3

Security class Stock code Rating Outlook Initial Rating
Class A2 SLRA2 AAA(ZA)(sf) Stable Sep. 2016
Class A3 SLRA3 AAA(ZA)(sf) Stable Dec. 2017
Class A4 SLRA4 AAA(ZA)(sf) Stable Dec. 2017
Class A5 SLRA5 AAA(ZA)(sf) Stable Aug. 2019
Class B2 SLRB2 A(ZA)(sf) Stable Sep. 2016
Class B3 SLRB3 A(ZA)(sf) Stable Dec. 2017
Class B4 SLRB4 A(ZA)(sf) Stable Dec. 2017
Class B5 SLRB5 AAA(ZA)(sf) Stable Aug. 2019
Class C2 SLRC2 BBB(ZA)(sf) Stable Sep. 2016
Class C3 SLRC3 BBB(ZA)(sf) Stable Dec. 2017
Class C4 SLRC4 BBB(ZA)(sf) Stable Dec. 2017
Class C5 SLRC5 AA+(ZA)(sf) Stable Aug. 2019
Security class Stock code Rating Outlook Last Rating
Class A2 SLRA2 AAA(ZA)(sf) Stable Aug. 2019
Class A3 SLRA3 AAA(ZA)(sf) Stable Aug. 2019
Class A4 SLRA4 AAA(ZA)(sf) Stable Aug. 2019
Class A5 SLRA5 AAA(ZA)(sf) Stable Aug. 2019
Class B2 SLRB2 AAA(ZA)(sf) Stable Aug. 2019
Class B3 SLRB3 AAA(ZA)(sf) Stable Aug. 2019
Class B4 SLRB4 AAA(ZA)(sf) Stable Aug. 2019
Class B5 SLRB5 AAA(ZA)(sf) Stable Aug. 2019
Class C2 SLRC2 AA+(ZA)(sf) Stable Aug. 2019
Class C3 SLRC3 AA+(ZA)(sf) Stable Aug. 2019
Class C4 SLRC4 AA+(ZA)(sf) Stable Aug. 2019
Class C5 SLRC5 AA+(ZA)(sf) Stable Aug. 2019

Glossary of Terms/Acronyms

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.
Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
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.
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.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
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).
Market An assessment of the property value, with the value being compared to similar properties in the area.
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.
Origination A process of creating assets.
Performing An obligation that performs according to its contractual obligations.
Prepayment Any unscheduled or early repayment of the principal of a mortgage/loan.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
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.
Redemption The repurchase of a bond at maturity by the issuer.
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.

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 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 May 2020;
  • Other miscellaneous data.
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