Announcements Rating Alerts Structured Finance

GCR assigns new ratings under the South African Securitisation Programme (RF) Ltd – Series 3. Rating of existing Notes affirmed. Outlooks Stable.

Rating Action

Johannesburg, 27 August 2021 – GCR Ratings (“GCR”) has assigned the following national scale long term issue credit ratings and outlooks to the Class A7 Notes, Class B7 Notes and Class C7 Notes (the “new Notes”) issued under the South African Securitisation Programme (RF) Limited – Series 3 (“SASP 3” or the “Issuer”) on 16 August 2021. The new Notes were issued to refinance the Class A2 Notes, Class B2 Notes, and Class C2 Notes, which had a Scheduled Maturity Date of 15 August 2021. The ratings assigned to the maturing Notes have been withdrawn post the refinance.

Security Class Stock Code Amount Rating class Rating scale Rating Outlook / Watch
Class A7 SLRA7 R276,000,000 Long Term Issue National AAA(ZA)(sf) Stable Outlook
Class B7 SLRB7 R45,000,000 Long Term Issue National AA+(ZA)(sf) Stable Outlook
Class C7 SLRC7 R20,000,000 Long Term Issue National A-(ZA)(sf) Stable Outlook
Class A2 SLRA2 R0 n.a. n.a. WD n.a.
Class B2 SLRB2 R0 n.a. n.a. WD n.a.
Class C2 SLRC2 R0 n.a. n.a. WD n.a.

At the same time, GCR affirmed the ratings assigned to the following Notes since their last review on 30 July 2021:

Security Class Stock Code Amount Rating class Rating scale Rating Outlook / Watch
Class A4 SLRA4 R125,000,000 Long Term Issue National AAA(ZA)(sf) Stable Outlook
Class A5 SLRA5 R259,000,000 Long Term Issue National AAA(ZA)(sf) Stable Outlook
Class A6 SLRA6 R357,000,000 Long Term Issue National AAA(ZA)(sf) Stable Outlook
Class B4 SLRB4 R37,000,000 Long Term Issue National AA+(ZA)(sf) Stable Outlook
Class B5 SLRB5 R30,000,000 Long Term Issue National AA+(ZA)(sf) Stable Outlook
Class B6 SLRB6 R31,000,000 Long Term Issue National AA+(ZA)(sf) Stable Outlook
Class C4 SLRC4 R25,000,000 Long Term Issue National A- (ZA)(sf) Stable Outlook
Class C5 SLRC5 R35,000,000 Long Term Issue National A- (ZA)(sf) Stable Outlook
Class C6 SLRC6 R25,000,000 Long Term Issue National A- (ZA)(sf) Stable Outlook

The rating actions reflect the unchanged capital structure post the refinance, relatively unchanged credit enhancement levels, and the result of GCR’s credit and cash flow analysis using the most recent collateral data at June 2021. While the ratings assigned to the Class A Notes demonstrate some resilience to certain modelled stresses, the Class B Notes’ and, to a larger extent, the Class C Notes’ ratings show some sensitivity to a variation of the key metrics of the asset portfolio.

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.

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, 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 3 is the third 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 – Series 1 and SASP 3 are primarily made up of office equipment leases, while SASP – Series 2 is primarily made up of capital asset leases.

Rating Rationale

Refinance

The capital structure has remained unchanged post the issuance of R276m Class A7 Notes (refinancing maturing R276m Class A2 Notes), R45m Class B7 Notes (refinancing maturing R45m Class B2 Notes) and R20m Class C7 Notes (refinancing maturing R20m Class C2 Notes). The Issuer did not issue additional subordinated loans. The pricings of the new Notes are lower than that of the maturing Class A2 Notes, Class B2 Notes, and Class C2 Notes.

GCR modelled a starting asset balance of R1,366.2m in performing assets in order to meet the 8% overcollateralisation requirement plus the R90.7m defaults as at June 2021 which sums up to R1,456.9m. This translates into an asset to notes ratio of 1.15x (November 2020 review: 1.14x).

Counterparty Risk

GCR’s view of the counterparty risk remains the same as at the June 2019 review, where the risk was assessed to be in line with GCR’s criteria. GCR notes the servicing risk posed by the COVID-19 pandemic and the related lockdown and social distancing practises. Servicing is being done remotely and to date, this has 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 Johannesburg Stock Exchange (“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. GCR deems the current procedure to be in line with GCR’s criteria.

Credit Risk

GCR considered the cumulative default rates and recovery rates by analysing the historical vintage data. Default and recovery data that covers the period from December 2002 to May 2021 were received. In light of the current economic environment, GCR noted that some default vintage curves indicated a deterioration in recent performance. GCR has amended its credit risk assumptions to reflect the most recent data, translating into a calculated net loss rate of 4.07% (previous: 2.86%).

  Current Previous
Default base case 5.79% 4.11%
Recovery base case 29.67% 30.45%
Calculated Net Loss Rate 4.07% 2.86%

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 August 2021 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 Notes to withstand the assumed credit and cash flow risks under a ‘AAA(ZA)(sf)’ rating scenario. The credit enhancements available to the Class B Notes and Class C Notes are adequate to mitigate credit and cash flow risks in the ‘AA+(ZA)(sf)’ and ‘A-(ZA)(sf)’ rating scenarios respectively.

Net Default Trigger Amendment

GCR has taken cognisance of the SENS announcement recently released by the Issuer relating to the amendment of the Net Default Test Event for SASP 3. In this regard, GCR’s analysis shows that the amendment does not have a negative impact on the ratings assigned to the Notes issued by SASP3. In conducting its analysis, GCR considered the following: 1) Historical levels of the net default ratio compared to the increased Net Default Test level from 2.625% to 4.5%); 2) whether the amended Net Default Test Event level may effectively end the Revolving Period upon a situation of negative excess spread/decrease in credit enhancement available to the Notes; 3) identification of other triggers that would effectively end the Revolving Period upon a situation of negative excess spread/decrease in credit enhancement available to the Notes; 4) incorporation of the amendment into GCR’s modelling of the cash flows available in Series 3.

It is important to highlight that the downgrade of the ratings assigned to the Class B and Class C Notes (compared to the November 2020 review) is not related to the amendment of the Net Default Test Event but solely due to the recent deterioration of the credit performance of the Issuer’s asset portfolio.

Ratings Sensitivities

GCR noted that the proportion of loans affected by payment holidays has decreased significantly since May 2020 and holidays have not been granted since August 2020, as such, cash flow disruption analysis was not deemed necessary.

In relation to the credit risk, GCR stressed the cash flows generated by the structure in a combination of increased default probability affecting the asset portfolio and decreased recoveries upon default.

The results suggest that the Class A Notes have sufficient credit enhancement to withstand additional stresses, while the ratings of the Class B Notes and Class C Notes are sensitive to moderate additional stresses over short to medium term horizons. GCR noted that the ratings of the Class C Notes are far more sensitive to an increase in defaults than a decrease in recoveries. As a result, should the defaults incurred by the asset portfolio show an upward trend in the future, the ratings of the Class C Notes may be further downgraded.

Class A Notes – AAA(ZA)(sf)
+15% Defaults -15% Recoveries +15% Defaults/-15% Recoveries +30% Defaults -30% Recoveries +30% Defaults/-30% Recoveries
AAA(ZA)(sf) AAA(ZA)(sf) AAA(ZA)(sf) AAA(ZA)(sf) AAA(ZA)(sf) AAA(ZA)(sf)
Class B Notes – AA+(ZA)(sf)
+15% Defaults -15% Recoveries +15% Defaults/-15% Recoveries +30% Defaults -30% Recoveries +30% Defaults/-30% Recoveries
AA-(ZA)(sf) AA+(ZA)(sf) AA-(ZA)(sf) AA-(ZA)(sf) AA(ZA)(sf) A+(ZA)(sf)
Class C Notes – A-(ZA)(sf)
+15% Defaults -15% Recoveries +15% Defaults/-15% Recoveries +30% Defaults -30% Recoveries +30% Defaults/-30% Recoveries
BBB(ZA)(sf) BBB+(ZA)(sf) BBB-(ZA)(sf) BBB-(ZA)(sf) BBB(ZA)(sf) BB+(ZA)(sf)

Source: GCR ratings

Operational Review

GCR performed an operational review with Sasfin in June 2021. 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. GCR notes 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.

Surveillance and Monitoring

GCR continuously monitors the performance of SASP 3 and publishes the Monitoring Dashboards on its website. The most recent Dashboard covers the period from February 2020 to February 2021.

Analytical Contacts

Primary Analyst Yohan Assous Sector head: Structured Finance Ratings
Johannesburg, ZA yohan@GCRratings.com +27 11 784 1771
Secondary Analyst Siyuan Lu Structured Finance Analyst
Johannesburg, ZA SiyuanL@GCRratings.com +27 11 784 1771
Committee Chair Corné Els Senior Financial Institutions Analyst
Johannesburg, ZA CorneE@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
Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
GCR Financial Institutions Sector Risk Scores, June 2021
Sasfin Bank Ltd July 2021 ratings review
SASP Series 3 New Issuance Report, December 2020
SASP Series 3 Pre-Funding Report, August 2021

Ratings History

South African Securitisation Programme (RF) Limited – Series 3

Security class Stock code Rating Outlook Initial Rating
Class A4 SLRA4 AAA(ZA)(sf) Stable Dec. 2017
Class A5 SLRA5 AAA(ZA)(sf) Stable Aug. 2019
Class A6 SLRA6 AAA(ZA)(sf) Stable Nov. 2020
Class A7 SLRA7 AAA(ZA)(sf) Stable Aug. 2021
Class B4 SLRB4 A(ZA)(sf) Stable Dec. 2017
Class B5 SLRB5 AAA(ZA)(sf) Stable Aug. 2019
Class B6 SLRB6 AAA(ZA)(sf) Stable Nov. 2020
Class B7 SLRB7 AA+(ZA)(sf) Stable Aug. 2021
Class C4 SLRC4 BBB(ZA)(sf) Stable Dec. 2017
Class C5 SLRC5 AA+(ZA)(sf) Stable Aug. 2019
Class C6 SLRC6 AA(ZA)(sf) Stable Nov. 2020
Class C7 SLRC7 A-(ZA)(sf) Stable Aug. 2021
Security class Stock code Rating Outlook Last Rating
Class A4 SLRA4 AAA(ZA)(sf) Stable July 2021
Class A5 SLRA5 AAA(ZA)(sf) Stable July 2021
Class A6 SLRA6 AAA(ZA)(sf) Stable July 2021
Class A7 SLRA7 AAA(ZA)(sf) Stable Aug. 2021
Class B4 SLRB4 AAA(ZA)(sf) Stable July 2021
Class B5 SLRB5 AAA(ZA)(sf) Stable July 2021
Class B6 SLRB6 AAA(ZA)(sf) Stable July 2021
Class B7 SLRB7 AA+(ZA)(sf) Stable Aug. 2021
Class C4 SLRC4 AA(ZA)(sf) Stable July 2021
Class C5 SLRC5 AA(ZA)(sf) Stable July 2021
Class C6 SLRC6 AA(ZA)(sf) Stable July 2021
Class C7 SLRC7 A-(ZA)(sf) Stable Aug. 2021

Glossary of Terms/Acronyms

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 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).
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Collateral Asset provided to a creditor as security for a loan or performance.
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.
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.
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.
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.
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.
Net Loss The amount of loss sustained by an insurer after giving effect to all applicable reinsurance, salvage, and subrogation recoveries.
Origination A process of creating assets.
Performing An obligation that performs according to its contractual obligations.
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.
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.
Servicer A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.
Subordinated Loan A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche.
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 Issuer. 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 virtual 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 June 2021;
  • Final Signed SASP S3 Class A7, Class B7 and Class C7 Applicable Pricing Supplements;
  • Default, recoveries and prepayments data up to May 2021;
  • SASP S3 Surveillance reports up to June 2021;
  • Final Signed Income Tax and Value-Added Tax Opinion (dated 30 July 2021);
  • Other miscellaneous data.


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