Announcements Rating Alerts Structured Finance

GCR revises rating outlooks on Urban Ubomi 1 (RF) Limited’s Notes to Stable from Rating Watch: Evolving

Rating Action

Johannesburg, 27 July 2021 – GCR Ratings (“GCR”) has revised the outlooks that relate to the following long-term issue credit ratings of the various Classes of Notes issued by Urban Ubomi 1 (RF) Limited (the “Issuer” or “Urban Ubomi 1”) from Rating Watch: Evolving to Stable:

Security Class Stock Code Issued Amount (ZAR) Rating Class Rating Scale Rating Outlook/

Rating Watch

Class A1 Notes UU1A01 199,652,465 Issue Long-Term National AAA(ZA)(sf) Stable
Class A2 Notes UU1A02 309,000,000 Issue Long-Term National AA+(ZA)(sf) Stable
Class B Notes UU1B01 73,000,000 Issue Long-Term National A-(ZA)(sf) Stable
Class C Notes UU1C01 25,000,000 Issue Long-Term National BBB(ZA)(sf) Stable

The Issuer has two unrated Subordinated Loans totalling R63,459,651.

The Rating Watch: Evolving related to the potential change, over the short-term, in the composition of the asset portfolio pending the completion of registration of Mortgage Bond cessions in the name of the Issuer. Some of these registrations had not yet taken place as at issuance date. If a cession had still not been registered within three months of issuance, the sale of the relevant Mortgage Loan Agreement would have been cancelled and the Seller would have refunded the Issuer at its Purchase Price (less any collections received by the Issuer on the relevant asset). Deviation from expectation of such registrations occurring within the three-month period might have led to changes in the portfolio composition and in turn have affected GCR’s modelling assumptions and rating outcome.

To date, registrations of all Mortgage Bond cessions in the name of the Issuer have been completed. GCR noted that a small number of loans were substituted due to these loans having been prepaid before the security registrations could have been completed. The registrations that relate to the substitutions have also been completed. The new asset pool, post the substitutions, shows characteristics which are very similar to the old asset pool. Therefore, no remodelling was deemed necessary.

GCR reviewed the transaction’s first investor report that relates to the period between issuance (23 March 2021) and the transaction’s first Interest Payment Date of 17 May 2021. GCR noted the negative excess spread reported, which led to the issuance of a second subordinated loan in order to make payments in terms of the Priority of Payments. GCR understands that this negative excess spread was mainly a result of Notes interest being calculated and paid for a period of almost two months whilst asset collections over the same period related to one month only. GCR expects this situation to normalise with positive excess spread being earned when a full quarter of performance is recorded.

In reviewing the rating outlooks, GCR has also taken cognisance of the SENS announcement recently released by the Issuer which states that the recent unrest has not had a direct impact on its portfolio.

In summary, the revision of the rating outlooks to Stable from Rating Watch: Evolving reflects the successful registration of all Mortgage Bond cessions in the name of the Issuer.

Analytical Contacts

Primary analyst Yehuda Markovitz Senior Structured Finance and Securitisation Analyst
Johannesburg, ZA YehudaM@GCRratings.com +27 11 784 1771
Secondary analyst Siyuan Lu Structured Finance and Securitisation Analyst
Johannesburg, ZA SiyuanL@GCRratings.com +27 11 784 1771
Committee chair Yohan Assous Sector Head: Structured Finance and Securitisation
Johannesburg, ZA Yohan@GCRratings.com +27 11 784 1771

Rating History

Security Class Stock Code Review Rating Scale Rating Outlook/

Rating Watch

Date
Class A1 Notes UU1A01 Initial & Last National AAA(ZA)(sf) Rating Watch:

Evolving

March 2021
Class A2 Notes UU1A02 Initial & Last National AA+(ZA)(sf) Rating Watch:

Evolving

March 2021
Class B Notes UU1B01 Initial & Last National A-(ZA)(sf) Rating Watch:

Evolving

March 2021
Class C Notes UU1C01 Initial & Last National BBB(ZA)(sf) Rating Watch:

Evolving

March 2021

Related Criteria and Reports

Criteria for Rating Structured Finance Transactions, Sep 2018
Criteria for Rating Consumer Asset Backed Securities, Sep 2018
Criteria for Rating Financial Institutions, May 2019
Rating Announcement – TUHF Limited, Dec 2020
Asset-Backed Securities Cash Flow Model, Sep 2018

Glossary of Terms/Acronyms

Arrears An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.
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).
Audit Report A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Credit A contractual agreement by which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company
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 90 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.
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.
Legal Opinion An opinion regarding the validity and enforceable of a transaction’s legal documents.
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.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Mortgage Loan 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.
Payment Date The date on which the payment of a coupon or dividend is made.
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.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Proceeds Funds from issuance of debt securities or sale of assets.
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.
Repayment Payment made to honour obligations with 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.
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.
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.
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.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the rating is influenced by any other business activities of the credit rating agency; b.) the ratings are based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings are 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 Issuer, and, therefore, GCR has been compensated for the provision of the ratings. The issuer participated in the rating process verbal and written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The information received from the Issuer and other reliable third parties to accord the credit rating included:

  • Final pool cut
  • Confirmation of registration of mortgage bonds
  • SENS announcement, 19 July 2021
  • Investor report, May 2021
image_pdf


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2022 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.