Johannesburg, 15th October 2019 – GCR Ratings (‘GCR’) has affirmed Transaction Capital Risk Services Proprietary Limited’s national scale primary and special servicer ratings at SQ1-(ZA)/SQ1(ZA), 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|
The national scale servicer quality ratings on Transaction Capital Risk Services Limited (‘TCRS’, ‘the Issuer’) reflect a strong debt collection profile for both its principal and agency portfolios, supported by a robust fintech platform, good management team, and a fairly strong financial profile.
Overall collections were up 21% during FY18, supported by increased participation in book buying. However, collections from the agency portfolio remain moderated with a decline noted within the financial sector. Factors that support TCRS’ ability to collect are explained below.
TCRS’ fintech platform “Cheetah” is a key competitive advantage and the ongoing IT investments have helped collections. Having said that, a good internal control environment has generally been supportive of the Issuer’s technological advancements while ensuring efficiencies in the operating system.
We consider the stable and experienced management team of TCRS to be broadly supportive of its collection ability. The Issuer buys and collects on a multiple of debt asset classes within various sectors and breadth of management experience and staff support is considered adequate. In addition, recent forward flow agreements are expected to increase stability in principal collections.
We also factor in the fairly strong financial profile of the Issuer. The financial profile balances the modest levels of leverage at year end 2018, with net debt to EBITDA of approximately 2x and funds from operations accounting for over 40% of net debt, but with free operating cash flow remaining negative due to the fairly rapid expansion of TCRS’ purchased book debts. We also factor in fairly strong earnings, with the EBIT margin over 30%, and adequate levels of liquidity.
The Stable outlook is supported by a stable debt collection profile, stable financial profile, and our expectation that ability to collect will remain sound.
A ratings improvement on the primary servicer rating could result from stronger collections from the agency portfolio. There is no upside to the special servicer quality rating. A weakening financial profile of the Issuer, in addition to reducing collections could lead to a downgrade in both ratings.
|Primary analyst||Simbarake Chimutanda||Financial Institutions Analyst|
|Johannesburg, ZA||SimbarakeC@GCRratings.com||+27 11 784 1771|
|Committee chair||Mathew Pirnie||Sector Head: Financial Institution Ratings|
|Johannesburg, ZA||MathewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Global Master Structured Finance Servicer Rating Criteria, February 2018|
|Criteria for the GCR Ratings Framework, May 2019|
|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, June 2019|
|GCR Financial Institutions Sector Risk Score, July 2019|
Transaction Capital Risk Services Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Primary Servicer||Initial||National||SQ2+(ZA)||Stable||June 2013|
|Special Servicer||Initial||National||SQ1-(ZA)||Stable||June 2013|
Rating Factor Score Summary
|Rating factor scores|
|Systems and controls||5.0|
|Management and staff||4.0|
|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.|
|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 rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The servicer quality rating has been disclosed to Transaction Capital Risk Services Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Transaction Capital Risk Services Limited 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 Transaction Capital Limited and other reliable third parties to accord the servicer quality rating included:
- Audited financial results of Transaction Capital Risk Services Limited as at 30 September 2018;
- Transaction Capital Risk Services Limited collections and AUM data as at 30 September 2018;
- Latest internal and/or external audit report to management;
- Industry comparative data.