Rating Action
Johannesburg, 17 November 2020 – GCR Ratings (“GCR”) has assigned the following credit ratings to the Class A6, Class B6 and Class C6 Notes issued under the South African Securitisation Programme (RF) Limited – Series 3 (“SASP 3” or the “Issuer”) with Stable Outlooks. The Notes were issued to refinance the maturing Class A3, Class B3 and Class C3 Notes. The ratings assigned to the maturing Notes have been withdrawn post the refinance.
n.a.: not applicable
GCR has concurrently affirmed the ratings assigned to the existing Class A and Class B Notes listed below with Stable Outlooks. The ratings of the existing Class C Notes have been downgraded to AA(ZA)(sf) from AA+(ZA)(sf), with Stable Outlooks.
| Security class | Stock code | Balance | Rating class | Rating scale | Rating | Outlook / Watch |
| Class A2 | SLRA2 | R276,000,000 | Long Term Issue | National | AAA(ZA)(sf) | Stable Outlook |
| 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 B2 | SLRB2 | R45,000,000 | Long Term Issue | National | AAA(ZA)(sf) | Stable Outlook |
| Class B4 | SLRB4 | R37,000,000 | Long Term Issue | National | AAA(ZA)(sf) | Stable Outlook |
| Class B5 | SLRB5 | R30,000,000 | Long Term Issue | National | AAA(ZA)(sf) | Stable Outlook |
| Class C2 | SLRC2 | R20,000,000 | Long Term Issue | National | AA (ZA)(sf) | Stable Outlook |
| Class C4 | SLRC4 | R25,000,000 | Long Term Issue | National | AA (ZA)(sf) | Stable Outlook |
| Class C5 | SLRC5 | R35,000,000 | Long Term Issue | National | AA(ZA)(sf) | Stable Outlook |
The abovementioned rating actions reflect the unchanged capital structure post the refinance, relatively constant credit enhancement levels, and the result of GCR’s credit and cash flow analysis using the most recent collateral data at September 2020. While the ratings assigned to the Class A and Class B Notes demonstrate some resilience to certain economic stresses, the Class C Notes ratings show some sensitivity to a variation of the key metrics of the asset portfolio. This explains the downgrade of the Class C Notes’ ratings following a moderate deterioration evidenced in the latest performance data, as well as the increased funding cost which places marginal financial pressure on the structure.
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 sensitive 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 respective Final Maturity 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 respective Final Maturity 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 (“Sasfin”). 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 has remained unchanged post the issuance of R357m Class A6 Notes (refinancing maturing R357m Class A3 Notes), R31m Class B6 Notes (refinancing maturing R31m Class B3 Notes) and R25m Class C6 Notes (refinancing maturing R25m Class C3 Notes). The Issuer did not issue additional subordinated loans. The pricing of the Class A6 Notes has increased substantially when compared to that of the maturing Class A3 Notes.
GCR modelled a starting asset balance of R1,366.2m in performing assets in order to meet the 8% overcollateralisation requirement plus the R72.7m defaults as at September 2020 which sums up to R1,438.9m. This translates into an asset to notes ratio of 1.14x (July 2020 review: 1.12x).
Counterparty Risk
Our 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. We note the servicing risk posed by the COVID-19 pandemic and the related lockdown and social distancing practises. Servicing is being done remotely and by the end of September 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 during the review period. Post the exercise and in light of the current economic environment, the vintage curves (data between June 2002 and September 2020) indicated some mild deterioration in recent performance (especially on the older vintages). GCR has amended its credit risk assumptions to reflect the most recent data, translating into a calculated net loss rate of 2.86% (previous: 2.61%).
| Current | Previous | |
| Default base case | 4.11% | 3.73% |
| Recovery base case | 30.45% | 30.05% |
| Calculated Net Loss Rate | 2.86% | 2.61% |
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 November 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 and Class B Notes to withstand the assumed credit and cash flow risks under a ‘AAA(ZA)(sf)’ rating scenario. The credit enhancement available to the Class C Notes is adequate to mitigate credit and cash flow risks in a ‘AA(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. GCR notes that the cash flow disruption analysis may be less relevant given that the proportion of loans affected by payment holidays has significantly decreased since May 2020 and holidays have not been granted since August 2020.
In relation to the credit risk, we 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 and Class B Notes have sufficient credit enhancement to withstand additional stresses, while the ratings of the 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.
| Rating Outcome | Class A Notes – AAA(ZA)(sf) | ||
| +15% Defaults | +30% Defaults | ||
| AAA(ZA)(sf) | AAA(ZA)(sf) | ||
| -15% Recoveries | AAA(ZA)(sf) | AAA(ZA)(sf) | AAA(ZA)(sf) |
| -30% Recoveries | AAA(ZA)(sf) | AAA(ZA)(sf) | AAA(ZA)(sf) |
| 80% collections in next 3 months | AAA(ZA)(sf) | AAA(ZA)(sf) | AAA(ZA)(sf) |
| 90% collections in next 6 months | AAA(ZA)(sf) | AAA(ZA)(sf) | AAA(ZA)(sf) |
| Rating Outcome | Class B Notes – AAA(ZA)(sf) | ||
| +15% Defaults | +30% Defaults | ||
| AAA(ZA)(sf) | AAA(ZA)(sf) | ||
| -15% Recoveries | AAA(ZA)(sf) | AAA(ZA)(sf) | AAA(ZA)(sf) |
| -30% Recoveries | AAA(ZA)(sf) | AAA(ZA)(sf) | AAA(ZA)(sf) |
| 80% collections in next 3 months | AAA(ZA)(sf) | AA+(ZA)(sf) | AA-(ZA)(sf) |
| 90% collections in next 6 months | AA+(ZA)(sf) | AA+(ZA)(sf) | A+(ZA)(sf) |
| Rating Outcome | Class C Notes – AA(ZA)(sf) | ||
| +15% Defaults | +30% Defaults | ||
| A+(ZA)(sf) | A+(ZA)(sf) | ||
| -15% Recoveries | AA(ZA)(sf) | A+(ZA)(sf) | A-(ZA)(sf) |
| -30% Recoveries | AA(ZA)(sf) | A+(ZA)(sf) | A-(ZA)(sf) |
| 80% collections in next 3 months | BB+(ZA)(sf) | BB+(ZA)(sf) | BB-(ZA)(sf) |
| 90% collections in next 6 months | BB+(ZA)(sf) | BB(ZA)(sf) | BB-(ZA)(sf) |
Source: GCR ratings
Operational Review
GCR performed an operational review of 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’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 5 months of purchases.
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 July 2019 to July 2020.
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 & Securitisation Analyst |
| Johannesburg, ZA | SiyuanL@GCRratings.com | +27 11 784 1771 |
| Committee Chair | Corné Els | Senior Structured Finance & Securitisation 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 Institution Sector Risk Scores, August 2020 |
| Sasfin Bank Ltd July 2020 ratings review |
| SASP Series 3 Surveillance Report, July 2020 |
Ratings History
South African Securitisation Programme (RF) Limited – Series 3
| Security class | Stock code | Rating | Outlook | Initial Rating |
| Class A2 | SLRA2 | AAA(ZA)(sf) | Stable | Sep. 2016 |
| 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 B2 | SLRB2 | A(ZA)(sf) | Stable | Sep. 2016 |
| 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 C2 | SLRC2 | BBB(ZA)(sf) | Stable | Sep. 2016 |
| 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 |
| Security class | Stock code | Rating | Outlook | Last Rating |
| Class A2 | SLRA2 | AAA(ZA)(sf) | Stable | Jul. 2020 |
| Class A4 | SLRA4 | AAA(ZA)(sf) | Stable | Jul. 2020 |
| Class A5 | SLRA5 | AAA(ZA)(sf) | Stable | Jul. 2020 |
| Class A6 | SLRA6 | AAA(ZA)(sf) | Stable | Nov. 2020 |
| Class B2 | SLRB2 | AAA(ZA)(sf) | Stable | Jul. 2020 |
| Class B4 | SLRB4 | AAA(ZA)(sf) | Stable | Jul. 2020 |
| Class B5 | SLRB5 | AAA(ZA)(sf) | Stable | Jul. 2020 |
| Class B6 | SLRB6 | AAA(ZA)(sf) | Stable | Nov. 2020 |
| Class C2 | SLRC2 | AA+(ZA)(sf) | Stable | Jul. 2020 |
| Class C4 | SLRC4 | AA+(ZA)(sf) | Stable | Jul. 2020 |
| Class C5 | SLRC5 | AA+(ZA)(sf) | Stable | Jul. 2020 |
| Class C6 | SLRC6 | AA(ZA)(sf) | Stable | Nov. 2020 |
| 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. |
| Applicable Pricing Supplement | A transaction document that describes the particulars of notes issued. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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. |
| Recovery | The action or process of regaining possession or control of something lost. To recoup losses. |
| 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. |
| 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. |
| Servicer | A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations. |
| 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. |
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the rating process 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 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 September 2020;
- Final SASP 3 Class A6 Applicable Pricing Supplement;
- Final SASP 3 Class B6 Applicable Pricing Supplement;
- Final SASP 3 Class C6 Applicable Pricing Supplement;
- Default, recoveries and prepayments data up to September 2020;
- Permitted Investments Undertaking Letter;
- Signed SASP 3 Bring Down Legal Opinion; and
- Other miscellaneous data
