Announcements Financial Institutions Rating Alerts

GCR affirms Transaction Capital Risk Services Proprietary Limited’s Servicer Quality Ratings, Outlook Stable

Rating Action

Johannesburg, 16 February 2021 – GCR Ratings (‘GCR’) has affirmed Transaction Capital Risk Services Proprietary Limited’s national scale primary and special servicer ratings of SQ1-(ZA)/SQ1(ZA) respectively, with outlooks accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Transaction Capital Risk Services Proprietary Limited Primary Servicer National SQ1-(ZA) Stable Outlook
Special Servicer National SQ1(ZA) Stable Outlook

Rating Rationale

The national scale servicer quality ratings on Transaction Capital Risk Services Proprietary Limited (‘TCRS’, ‘the entity’) balance a strong debt collection profile for both its principal and agency portfolios, stable technology and internal control environment, good management team and a fairly strong financial profile.

Collections have been steady over the past 3-5 years registering 1.5% growth in 2020. This positive trend benefits from TCRS’ adequately diversified portfolio (by sector/asset class) that has helped weather a difficult environment. In addition, resilience in collections can also be attributed to the entity’s change to its collections strategy over the last few years. The principal portfolio (acquired book debts) is now the predominant revenue contributor, representing a significant shift from agency business. Having said that, the acquired debt portfolio has strong collection fundamentals, with a 5-year average estimated remaining collections of 2.9x, although expectations are that the multiple will decline to around 2.6x given debt serviceability challenges under the COVID-19 environment. While it is positive to note the sustained growth in collections, the rate has been reducing over the last 2 years largely owing to the public sector portfolio whose collections dropped by close to R500mln from cessation of mandates. Notwithstanding this, collections over the last 3 months from date of assessment have returned to 100% pre-COVID levels.

TCRS’ fintech platform “Cheetah” is a key competitive advantage strengthening the collections experience. Ongoing IT investments including regular maintenance of the system is also viewed positively. The internal control environment is considered to be good.

We consider the stable and experienced management team of TCRS to be broadly supportive of its collection ability. The Issuer buys and collects multiple debt asset classes within various sectors, while the breadth of management experience and staff support is considered adequate. In addition, management’s forward flow agreements with some top tier corporates adds stability to principal collections.

Financial profile is fairly strong balancing modest levels of leverage with net debt to EBITDA of approximately 2x and funds from operations accounting for just 48% of net debt. Free operating cash flow is negative due to the fairly rapid expansion of TCRS’ purchased book debts. Earnings are fairly strong, reflected by an EBIT margin over 30%. Risk position is also fairly strong, with average estimated remaining collections (‘ERC’) of 2.9x purchase price. However, earnings came under pressure in 2020 due to significant write downs of purchased book values due to the impact of COVID-19 on collections, forcing a revision of ERC to around 2.6x. We also factor in adequate levels of liquidity, with further support derived from the holding company. The financial profile also benefits from geographical diversification of business, with c.25% of revenues generated from Australia which is considered to have a stronger operating environment.

Outlook Statement

The outlook factors in stable technology and internal control environment, stable management team, strong collections ability and strong financial profile. Alongside the above, GCR recognises the collections environment is likely to get tough and this could, over time, negatively impact the ratings.

Rating Triggers

There is no upside to the special servicer quality rating as we have accorded the highest rating. An improvement on the primary servicer quality rating could result from an extended track record in debtor administration capabilities alongside sustained stronger collections. A weakening financial profile and/or systems and control environment of the entity, in addition to reducing collections, could lead to a downgrade in both ratings.

Analytical Contacts

Primary analyst Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Vinay Nagar Senior Financial Institutions Analyst
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771

Related Criteria and Research

Global Master Structured Finance Servicer Rating Criteria, February 2018
Criteria for Rating Financial Institutions, May 2019
Criteria for Rating Financial Services Companies, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, February 2021
GCR Financial Institutions Sector Risk Score, February 2021

Ratings History

Transaction Capital Risk Services Proprietary Limited

Rating class Review Rating scale Rating Outlook Date
Primary Servicer Initial National SQ2+(ZA) Stable June 2013
Last National SQ1-(ZA) Stable October 2019
Special Servicer Initial National SQ1-(ZA) Stable June 2013
Last National SQ1(ZA) Stable October 2019

Rating Factor Score Summary

Rating factor scores
Arrears management 5.0
Debtor administration 4.0
Systems and controls 5.0
Management and staff 4.0
Financial strength 5.0
Average Score 4.6

Glossary

Capital The sum of money that is invested to generate proceeds.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
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.
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.
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.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings were 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.

The servicer quality ratings have been disclosed to TCRS. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

TCRS 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. The information received from TCRS and other reliable third parties to accord the servicer quality rating included:

  • Audited financial results of Transaction Capital Limited as at 30 September 2020;
  • TCRS collections and AUM data as at 31 December 2020;
  • Latest internal and/or external audit report to management;
  • Industry comparative data.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.