Johannesburg, 15 June 2017 – 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 MDB Credit Solutions Holdings Proprietary Limited (“MDB”), based on the following key criteria:
The servicer quality ratings of TCRS reflect its very strong internal control environment and stable, flexible 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 management team continued to deliver positive business development/diversification, collections efficiency, and strategy implementation outcomes. Call centre consolidation into three metro-based branches combined with efficiency-enhancing technology rollout neutralised the impact of related staff redundancies, while bolstering management oversight of call centre operations.
Ongoing enhancement of operational systems and controls supported TCRS’ strong collections environment. Implementation of new dialler technology yielded operational efficiencies and ongoing cost reductions. Oversight, management, and quality control remained key priorities.
Regularly upgraded information technology systems, with increased workflow and performance reporting integration supported operational process optimisation, as well as stability, connectivity, data accuracy, and security. High levels of duplication/redundancy/excess capacity mitigate risks embedded in the complex operating environment, while supporting scalability and business continuity. Significant internal ICT resources support TCRS’ systems development and maintenance requirements.
Solid financial condition reflects efficiency gains from operational enhancements. Revenue (net and non-interest income) grew by 16% and pre-tax income by 24% in FY16, partly driven by 21% growth in on-balance sheet assets. Cost containment was a key determinant of bottom line margin expansion. The group’s sustainable operational/solvency profile and earnings growth/diversification may be bolstered by the acquisition of three complementary risk services businesses in 1H FY17.
Declining aggregate agency collection metrics reflected 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 was stable between FY15 and FY16, masking a significant substitution of agency with principal assets.
Continued improvement in market positioning (in loan/debtor administration), management depth and stability, and the portfolio collections track record (principal and agency collections) could enhance the ratings, while lower than anticipated collections, lower business volumes, diminished financial stability, or evidence of systems or staffing challenges, and significant adverse regulatory changes could have a negative impact on the ratings.
* 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 2016)|
|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|
|Omega Collocott||Jennifer Mwerenga|
|Sector Head: Financial Institution Ratings||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Criteria for Rating Structured Finance Servicers, updated February 2017
TCRS/MDB rating reports (2011-16)
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 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; 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, teleconferences 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 2016 (plus four years of comparative numbers);
- Management accounts to 31 December 2016; and
- Collections and asset under management data to 30 September 2016; 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