Announcements Rating Alerts Structured Finance

GCR assigns new ratings to the South African Securitisation Programme (RF) Limited – Series 2 Notes. Outlook Stable.

Rating Action

Johannesburg, 26 November 2019 – GCR Ratings (“GCR”) has assigned the following national scale long-term issue credit ratings and outlooks to the following Notes issued by the South African Securitisation Programme (RF) Limited – Series 2 (“SASP 2” or the “Issuer”) on 20 November 2019 (the “Transaction”). The Notes were issued to refinance the maturing Class A2, Class B2 and Class C2 Notes.

Security Class

Stock Code

Amount

Rating class

Rating scale

Rating

Outlook / Watch

Class A3

LRFA3

R280,000,000

Issue Long-Term

National

AAA(ZA)(sf)

Stable Outlook

Class B3

LRFB3

R52,500,000

Issue Long-Term

National

AA+(ZA)(sf)

Stable Outlook

Class C3

LRFC3

R17,500,000

Issue Long-Term

National

AA-(ZA)(sf)

Stable Outlook

At the same time, GCR withdrew the ratings of the Class A2, Class B2 and Class C2 Notes, following their full capital redemption.

Security Class

Stock Code

Amount

Rating class

Rating scale

Rating

Outlook / Watch

Class A2

LRFA2

R280,000,000

Issue Long Term

National

WD(ZA)(sf)

n.a

Class B2

LRFB2

R52,500,000

Issue Long Term

National

WD(ZA)(sf)

n.a

Class C3

LRFC2

R17,500,000

Issue Long Term

National

WD(ZA)(sf)

n.a

The ratings reflect the unchanged capital structure post the refinance, relatively constant credit enhancement levels, the asset performance and GCR’s credit and cash flow analysis using the most recent collateral data.

The Transaction is currently in its Revolving Period. As per GCR’s Criteria for Rating Structured Finance Transactions, the Transaction was modelled using its Pre-Enforcement Priority of Payments applicable in an Amortisation Period.

The national scale ratings assigned to the Class A Notes relate to timely payment of interest and ultimate payment of principal by the 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 principal by the 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 2 is the second 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 2 is primarily made up of capital asset leases, while SASP 1 and SASP 3 are primarily made up of office equipment leases.

Rating Rationale

Refinance

The capital structure has remained unchanged post the November 2019 issuance of the R280m Class A3 Notes (refinancing maturing R280m Class A2 Notes), R52.5m Class B3 Notes (refinancing maturing R52.5m Class B2 Notes) and R17.5m Class C3 Notes (refinancing maturing R17.5m Class C2 Notes). The subordinated loans remain unchanged at R35m.

The modelled Asset to Notes ratio post the refinance is 1.19x which reflects the minimum performing assets to be compliant with the 10% overcollateralization requirement and the loans in default at September 2019 (June 2019 review: 1.18x, Actual at September 2019: 1.24x).

GCR considered the tenor and the improved pricing of the notes issued under the Transaction.

Counterparty Risk

GCR’s view of the counterparty risk remains the same as at the June 2019 review of SASP 2 under the criteria updated in September 2018.

Of note, amendments to the transaction documents relating to Permitted Investments which needed both investor and JSE approval, have not yet been concluded as was anticipated by the Issuer. This is as the Issuer is awaiting a conclusion to the ongoing debates on the JSE requirements. The Issuer has however provided GCR a letter which illustrates how Permitted Investments are managed. GCR deems the current procedure to be in line with its criteria.

Credit Risk

GCR’s credit analysis (base case assumptions for the cumulative default rates, recovery rates and prepayments rates) remain unchanged since its previous review of the transaction in June 2019. For the June 2019 review, GCR analysed vintage curves from December 2002 to December 2018.

It should be noted that given the obligor concentration limits allowed under the transaction documents, such concentrations drive the stressed cumulative default assumptions. GCR has observed an increasing trend in concentration metrics through its Monitoring process. However, the concentrations remain below the modelled assumptions and are in line with covenants. In light of the observed performance of the transaction and given that GCR does not anticipate significant changes for the outlook period, the assumptions modelled at the June 2019 review were maintained.

Cash Flow Analysis

GCR’s cash flow analysis reflects the application of the different stress levels modelled to the Transaction’s Pre-Enforcement and Amortising scenario at each rating level as per GCR’s Criteria. GCR’s assessment of the transaction’s capital structure including the November 2019 refinance, the asset performance and GCR’s cash flow assumptions.

The analysis indicates that there is adequate credit enhancement for the Class A Notes to withstand the assumed credit and cash flow risks under a ‘AAA(ZA)(sf)’ rating scenario. The credit enhancement available to the Class B Notes is adequate to withstand the credit and cashflow risks in a ‘AA+(ZA)(sf)’ rating scenario. While, the credit enhancement available to the Class C Notes is adequate to withstand the credit and cashflow risks in a ‘AA-(ZA)(sf)’ rating scenario.

Ratings Stability

GCR ran six rating sensitivities in which the defaults and recoveries were increased and decreased respectively. The results show that the credit enhancement available to the Class A Notes is adequate to withstand these additional stresses in a ‘AAA(ZA)(sf)’ rating scenario. While, the credit enhancement available to the Class B Notes is adequate to withstand the additional stresses in a ‘AA+(ZA)(sf)’ rating scenario. Similarly, the credit enhancement available to the Class C Notes is adequate to withstand the additional stresses in a ‘A-(ZA)(sf)’ rating scenario.

Operational Review

GCR performed an operational review with Sasfin in July 2019. Sasfin appointed new personnel in key roles including a Chief Risk Officer, Head of Internal Audit and a General Manager for Credit. Sasfin indicated a focus on quality originations. At the same time, GCR noted lower credit losses reported at the year-end results.

A new Treasury Middle Office Manager (new role) appointment was created to administer the SASP transactions. In the long term, GCR considers the changes to be positive to the transaction especially with regards to the reporting concerns raised at the June 2019 review. The Treasury Middle Office Manager and the Treasury now perform the third check of the reports. The new IT system (Leasewave) provides a more centralized platform to house and manage data. Given the recency of the system, GCR will allow more time to observe its impact.

Surveillance and Monitoring

GCR continuously monitors the performance of SASP 2 and publishes the Monitoring Dashboards on its website. The most recent Dashboard covers the period from September 2018 to September 2019.

Analytical Contacts

Primary Analyst

Gary Nyoni

Structured Finance Analyst

Johannesburg, ZA

GaryN@GCRratings.com

+27 11 784 1771

     

Secondary Analyst

Tinashe Mujuru

Structured Finance Analyst

Johannesburg, ZA

TinasheM@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, September 2018

Criteria for Rating Consumer Asset Backed Securities, September 2018

SASP Series 2 New Issuance Report, November 2016

SASP Series 2 Surveillance Report, June 2019

Asset-Backed Securities Cash Flow Model, September 2018

Sasfin, August 2019 ratings review

Ratings History

South African Securitisation Programme (RF) Limited – Series 2

Security class

Stock code

Review

Rating scale

Rating

Outlook

Date

Class A3

LRFA3

Initial & Last

National

AAA(ZA)(sf)

Stable Outlook

Nov. 2019

Class B3

LRFB3

Initial & Last

National

AA+(ZA)(sf)

Stable Outlook

Nov. 2019

Class C3

LRFC3

Initial & Last

National

AA-(ZA)(sf)

Stable Outlook

Nov. 2019

Glossary of Terms/Acronyms

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).

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).

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.

Concentrations

A high degree of positive correlation between factors or excessive exposure to a single factor that share similar demographics or financial instrument or specific sector or specific industry or specific markets.

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 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.

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 a law or rule et cetera.

Environment

The surroundings or conditions in which an entity operates (Economic, Financial, Natural).

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.

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).

National Scale Rating

National scale ratings measure creditworthiness relative to issuers and issues within one country.

Obligor

The party indebted or the person making repayments for its borrowings.

Origination

A process of creating assets.

Performing

An obligation that performs according to its contractual obligations.

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.

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.

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.

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.

Tenor

The time from the value date until the expiry date of an instrument, typically a loan or option.

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.

Salient Points 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 ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The credit ratings have been disclosed to the Arranger. 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.

The Arranger participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the Arranger and other reliable third parties to accord the credit ratings included:

  • Pool Cut for the Portfolio at September 2019;
  • SASP 2 Class A3 Applicable Pricing Supplement;
  • SASP 2 Class B3 Applicable Pricing Supplement;
  • SASP 2 Class C3 Applicable Pricing Supplement;
  • Permitted Investments Undertaking Letter;
  • SASP 2 Bring down Legal Opinion;
  • SASP 2 updated Tax Opinion; and
  • SASP 2 Surveillance Reports up to September 2019.
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