Rating Action
Johannesburg, 17 July 2020 – GCR Ratings (“GCR”) has assigned indicative issue credit ratings to the Class A28 Notes to be issued under the South African Securitisation Programme (RF) Limited – Series 1 (“SASP 1” or the “Issuer”) on or about 17 August 2020. The Notes will be issued to refinance the maturing Class A21 and Class A24 Notes. The indicative ratings will expire on the sooner of 31 August 2020 or the issuance date of the Class A28 Notes, while the ratings assigned to the maturing Notes are expected to be withdrawn post the refinance.
| Security Class | Stock Code | Amount | Rating class | Rating scale | Rating | Outlook / Watch |
| Class A28 | ERSA28 | R263,000,000 | Issue Long Term | National | AAA(ZA)(sf)(IR) | Stable Outlook |
At the same time, GCR has affirmed the ratings assigned to the existing Notes listed below with Stable Outlooks.
| Security Class | Stock Code | Amount | Rating class | Rating scale | Rating | Outlook / Watch |
| Class A21 | ERSA21 | R155,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class A24 | ERSA24 | R108,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class A25 | ERSA25 | R281,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class A26 | ERSA26 | R178,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class A27 | ERSA27 | R230,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class B6 | ERS3B6 | R16,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class B7 | ERS3B7 | R99,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class C6 | ERS3C6 | R6,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
| Class C7 | ERS3C7 | R35,000,000 | Issue Long Term | National | AAA(ZA)(sf) | Stable Outlook |
The rating action follows the annual review of the ratings, an assessment of two hypothetical capital structures, (1) assuming the anticipated refinance and (2) assuming no refinance and the Class A21 and Class A24 Notes remain in the structure till their Final Redemption Dates. 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 12.54% overcollateralisation covenant, the asset performance and GCR’s credit and cash flow analysis using the most recent collateral data at May 2020.
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 resilient 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 1 is the first 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
Refinance
The capital structure is anticipated to remain largely unchanged post the issuance of R263m in Class A28 Notes (refinancing maturing R155m, Class A21 and R108m Class A24 Notes). The issuer does not intend to issue additional subordinated loans. The anticipated pricing of the Class A28 Notes is expected to be higher when compared to that of the weighted average coupon on the Class A21 and Class A24 Notes.
GCR modelled a starting asset balance of R1,246.9m in performing assets in order to meet the 12.54% overcollateralization requirement plus the R101.2m defaults as at May 2020 which sums up to R1,348.2m. This translates into an asset to notes ratio of 1.22x (actual including cash at May 2020: 1.49x).
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 event 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.
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 vintage curves (data between June 2002 and May 2020) show some moderate deterioration in performance. GCR has amended its credit risk assumptions to reflect the most recent data, translating into a calculated net loss rate of 2.76% (previous: 2.54%).
| Current | Previous | |
| Default base case | 3.53% | 3.41% |
| Recovery base case | 21.70% | 25.59% |
| Calculated Net Loss Rate | 2.76% | 2.54% |
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 including the anticipated August 2020 refinance, the asset performance and GCR’s cash flow assumptions.
GCR’s analysis and cash flow model indicates that there is sufficient credit enhancement for the Class A, Class B and Class C Notes to withstand the assumed credit and cash flow risks under a ‘AAA(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 resilient to moderate additional stresses over short to medium term horizons.
| Class A Notes – AAA | |||||
| +15% Defaults | +30% Defaults | -15% Recoveries | -30% Recoveries | ||
| AAA | AAA | AAA | AAA | ||
| -15% Recoveries | AAA | AAA | AAA | AAA | AAA |
| -30% Recoveries | AAA | AAA | AAA | AAA | AAA |
| 80% collections in next 3 months | AAA | AAA | AAA | AAA | AAA |
| 90% collections in next 6 months | AAA | AAA | AAA | AAA | AAA |
| Front Loaded PD vector | AAA | AAA | AAA | AAA | AAA |
| Class B Notes – AAA | |||||
| +15% Defaults | +30% Defaults | -15% Recoveries | -30% Recoveries | ||
| AAA | AAA | AAA | AAA | ||
| -15% Recoveries | AAA | AAA | AAA | AAA | AAA |
| -30% Recoveries | AAA | AAA | AAA | AAA | AAA |
| 80% collections in next 3 months | AAA | AAA | AA+ | AAA | AAA |
| 90% collections in next 6 months | AAA | AAA | AA+ | AAA | AAA |
| Front Loaded PD vector | AAA | AAA | AAA | AAA | AAA |
| Class C Notes – AAA | |||||
| +15% Defaults | +30% Defaults | -15% Recoveries | -30% Recoveries | ||
| AAA | AAA | AAA | AAA | ||
| -15% Recoveries | AAA | AAA | AAA | AAA | AAA |
| -30% Recoveries | AAA | AAA | AAA | AAA | AAA |
| 80% collections in next 3 months | AA+ | AA | A+ | AA+ | AA+ |
| 90% collections in next 6 months | AA+ | AA | A+ | AA+ | AA+ |
| Front Loaded PD vector | AAA | AAA | AAA | AAA | AAA |
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 1 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 1 Pre-Funding Report, July 2020 |
| SASP Series 1 New Issuance Report, August 2019 |
| SASP Series 1 New Issuance Report, December 2015 |
Ratings History
South African Securitisation Programme (RF) Limited – Series 1
| Security class | Stock code | Rating | Outlook | Initial Rating |
| Class A21 | ERSA21 | AAA(ZA)(sf) | Stable | Sep. 2015 |
| Class A24 | ERSA24 | AAA(ZA)(sf) | Stable | Aug. 2017 |
| Class A25 | ERSA25 | AAA(ZA)(sf) | Stable | Aug. 2017 |
| Class A26 | ERSA26 | AAA(ZA)(sf) | Stable | Jun. 2019 |
| Class A27 | ERSA27 | AAA(ZA)(sf) | Stable | Aug.2019 |
| Class A28 | ERSA28 | AAA(ZA)(sf)(IR) | Stable | Jul. 2020 |
| Class B6 | ERS3B6 | AAA(ZA)(sf) | Stable | Jun. 2019 |
| Class B7 | ERS3B7 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class C6 | ERS3C6 | AAA(ZA)(sf) | Stable | Jun. 2019 |
| Class C7 | ERS3C7 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Security class | Stock code | Rating | Outlook | Last Rating |
| Class A21 | ERSA21 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class A24 | ERSA24 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class A25 | ERSA25 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class A26 | ERSA26 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class A27 | ERSA27 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class A28 | ERSA28 | AAA(ZA)(sf)(IR) | Stable | Jul. 2020 |
| Class B6 | ERS3B6 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class B7 | ERS3B7 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class C6 | ERS3C6 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| Class C7 | ERS3C7 | AAA(ZA)(sf) | Stable | Aug. 2019 |
| 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). |
| Applicable Pricing Supplement | A transaction document that describes the particulars of notes issued. |
| 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. |
| 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. |
| Coupon | The interest paid on a bond expressed as a percentage of the face value. If a bond carries a fixed coupon, the interest is usually paid on an annual or semi-annual basis. The term also refers to the detachable certificate entitling the bearer to the interest payment. |
| 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. |
| 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. |
| 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. |
| Pool | An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts. |
| Portfolio | A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value. |
| Prepayment | Any unscheduled or early repayment of the principal of a mortgage/loan. |
| Pricing | A process of determining the price of a debt security. |
| 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. |
| Refinance | The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place. |
| 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. |
| Subordinated Loan | A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche. |
| 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. |
| Weighted Average | An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities. |
| Weighted | The weight that a single obligation has in relation to the aggregated pool of obligations. For example, a single mortgage principal balance divided by the aggregated mortgage pool principal balance. |
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:
- Pool Cut for the Portfolio at May 2020;
- SASP 1 Class A28 draft Applicable Pricing Supplement;
- Default, recoveries and prepayments data up to May 2020;
- Permitted Investments Undertaking Letter;
- Other miscellaneous data.
