Johannesburg, 19 June 2018 – Global Credit Ratings (“GCR”) has affirmed the primary and special servicer ratings accorded to Transaction Capital Risk Services Proprietary Limited of SQ1-(ZA) and SQ1(ZA) respectively; with the outlooks accorded as Stable.
Global Credit Ratings (“GCR”) has accorded the above servicer quality (“SQ”) * ratings to Transaction Capital Risk Services Proprietary Limited (“TCRS”, “the group”), formerly MBD Credit Solutions Holdings Proprietary Limited (“MBD”), based on the following key criteria:
The servicer quality ratings of TCRS reflect its very strong internal control environment and stable/sophisticated technology and resource capability/capacity. The primary servicer rating reflects increasing cross-sector loan/debtor administration experience, while the special servicer rating considers TCRS’ ability to effectively collect on arrear loans.
The stable, competent and experienced management team, coupled with increased investment in human resource and technology continues to deliver positive business development/diversification, and collections efficiency. TCRS targets increased market share through demonstrated superior performance that is communicated to existing and prospective clients. Consequently, the group has been active in the debt acquisition market for the year under review, securing new portfolios with a face value of R5.2bn for an investment of R356m, increasing collections on acquired assets by 39% to R347m in FY17.
Ongoing enhancement of operational systems and controls supports TCRS’ strong collections environment. Implementation of new dialler technology (in FY16) continues to yield process and cost efficiencies. Oversight, management, and quality control processes remain key priorities.
Regularly upgraded information technology systems, with increased workflow and performance reporting integration supports process optimisation, as well as stability, connectivity, data accuracy, and security. High levels of excess capacity mitigate risks embedded in the complex operating environment, while at the same time supporting scalability and business continuity.
Robust financial performance reflects ongoing efficiency gains from operational enhancements. Revenue (non-interest) grew by 16.3% and pre-tax income by 24.8% in FY17, partly driven by 35.3% growth in on-balance sheet assets. A bottom line margin compression in relation to ROA and ROE was due to large assets (book debts and investment companies) acquired during FY17 partially funded by equity and long-term debt. ROA and ROE are expected to normalise in due course due to realisation of yield from these acquired assets. Furthermore, the group’s sustainable operational/solvency profile and earnings growth/diversification, underpinned by careful analytics and valuations done on principal portfolios prior to the purchase of the debt allows for continued and profitable revenue streams.
Moderate agency collections’ growth reflects challenging operating conditions. GCR notes the limitations of using collections relative to average assets under management (“AUM”) metrics in measuring performance on a portfolio-wide basis due to distortions introduced by changes in portfolio mix. TCRS’ AUM portfolio size reduced slightly between FY16 and FY17, masking a substitution of agency with principal assets.
Rating triggers: While upside rating potential is viewed to be limited, a material improvement in market positioning (in loan and debtor administration), management depth and stability, and the portfolio collections track record (principal and agency collections) may trigger a positive rating action. A negative rating action may follow lower than anticipated collections, lower business volumes, diminished financial stability, or evidence of systems or staffing challenges, and significant adverse regulatory changes.
* Note that servicer quality ratings are classified as non-credit ratings (refer to GCR’s published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (March 2011)|
|Servicer quality (combined): SQ2(ZA)|
|Rating outlook: Stable|
|Initial rating (June 2013)||Last rating (May 2017)|
|Primary Servicer: SQ2+(ZA)||Primary Servicer: SQ1-(ZA)|
|Special Servicer: SQ1-(ZA)||Special Servicer: SQ1(ZA)|
|Rating outlook/s: Stable||Rating outlook/s: Stable|
|Primary Analyst||Committee Chairperson|
|Simbarake Chimutanda||Matthew Pirnie|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Criteria for Rating Structured Finance Servicers, updated February 2018
TCRS/MDB rating reports (2011-17)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings 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; c.) such ratings were 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.
Transaction Capital Risk Services Proprietary Limited participated in the rating process via management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The ratings were disclosed to Transaction Capital Risk Services Proprietary Limited with no contestation of/changes to the ratings.
The information received from Transaction Capital Risk Services Proprietary Limited and other reliable third parties to accord the ratings included:
- Audited annual financial statements at 30 September 2017 (plus four years of comparative numbers);
- Management accounts to 31 December 2017; and
- Collections and asset under management data to 30 September 2017; and
- Detailed information related to the group, its subsidiaries and operations.
The ratings were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY
|Administration||A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates’ Court Act 32 of 1944 (South Africa).|
|Asset||An item with economic value that an entity owns or controls.|
|Capital||The sum of money that is used to generate proceeds.|
|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.|
|Environment||The surroundings or conditions in which an entity operates (Economic, Financial, Natural).|
|Income||Money received, especially on a regular basis, for work or through investments.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|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.|
|Servicer||A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.|
|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.|
|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.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a detailed glossary of terms please click here