Announcements

GCR upgrades MBD Credit Solutions Holdings (Proprietary) Limited’s servicer quality* ratings; Stab

Johannesburg, 23 May 2016—Global Credit Ratings has upgraded the primary and special servicer ratings assigned to MBD Credit Solutions Holdings (Proprietary) Limited to SQ1-(ZA) and SQ1(ZA) respectively; with the outlooks accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above servicer quality (“SQ”)* ratings to MBD Credit Solutions Holdings (Proprietary) Limited (“MBDCS”, “the group”) based on the following key criteria:

The servicer quality ratings of MBDCS reflect its very strong internal control environment; and stable/flexible technology and resource capability/capacity. The primary servicer rating reflects increasing cross-sector loan/debtor administration experience, while the special servicer rating considers MBDCS’ ability to effectively collect on arrear loans.

The stable, competent management and staff continued to deliver positive outcomes in the areas of business development and diversification, collections proficiency, and strategic initiative implementation. In addition, increasingly holistic training, development and performance management structures bolstered the alignment of staff and corporate goals.

Strong operational systems and internal controls were further entrenched/integrated through systems enhancements which strengthened oversight, management, and quality control processes. Efficiencies in the call centre and collection systems, together with upgraded security protocols, real-time performance monitoring and financial reporting interfaces, bolstered monitoring and accountability processes.

Integrated information technology systems optimise operational processes, as well as stability, connectivity, data accuracy, and security. Domestic infrastructure challenges necessitate high levels of duplication/redundancy/excess capacity. Systems development and infrastructure, data security, and management information system enhancements are delivered regularly.

MBDCS’ financial condition remained solid, despite structural changes. In F15, its parent, Transaction Capital Limited transferred its ‘risk services’ businesses to MBDCS, growing its balance sheet by 70%. This did not impact servicing, arguably increasing parental support. While a challenging collections environment features decelerating economic growth, high/rising consumer stress, and evolving regulation, increasing the effort and cost of collection, MBDCS has managed to grow its business volumes and contain costs.

Aggregate agency collection measures showed improvement, in terms of collections relative to average assets under management. GCR notes that this may not represent accurate portfolio-wide performance trends, due to MBDCS’ changing portfolio composition (rising agency/public sector volumes), and sensitivity of this measure to portfolio mix.

Continued improvement in market positioning (in loan/debtor administration), management depth and stability, and the portfolio collections track record (principal and agency collections) could further enhance the ratings. Lower than anticipated collections, declining business volumes, diminished financial stability, evidence of systems or staffing challenges, or significant adverse regulatory changes, could have a negating impact on the ratings.

* Note that servicer quality ratings are classified as non-credit ratings (refer to GCR’s published rating scales and definitions).

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (March 2011)    
Servicer quality (combined): SQ2(ZA)    
Rating outlook: Stable    
     
Initial rating (June 2013)   Last rating (June 2015)
Primary Servicer: SQ2+(ZA)   Primary Servicer: SQ2+(ZA)
Special Servicer: SQ1-(ZA)   Special Servicer: SQ1-(ZA)
Rating outlook/s: Stable   Rating outlook/s: Positive

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Omega Collocott   Jennifer Mwerenga
Sector Head: Financial Institution Ratings   Senior Credit Analyst
(011) 784-1771   (011) 784-1771
omegac@globalratings.net   jennifer@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Criteria for Rating Structured Finance Servicers, updated February 2016

MBDCS rating reports (2011-15)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES 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 rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable rating document.

The ratings were solicited by, or on behalf of, MBD Credit Solutions Holdings (Proprietary) Limited, and GCR has been compensated for the provision of the ratings.

MBD Credit Solutions Holdings (Proprietary) Limited 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 ratings were disclosed to MBD Credit Solutions Holdings (Proprietary) Limited with no contestation of/changes to the ratings.

The information received from MBD Credit Solutions Holdings (Proprietary) Limited and other reliable third parties to accord the ratings included:

  • Audited annual financial statements at 30 September 2015 (plus four years of comparative numbers);
  • Management accounts to 31 December 2015; and
  • Detailed information related to the group, its subsidiaries and operations.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

Arrears General term for non-performing obligations, i.e. obligations that are overdue.
Asset An item with economic value that an entity owns or controls.
Credit A contractual agreement in 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
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Debtor The party indebted or the person making repayments for its borrowings.
Environment The surroundings or conditions in which an entity operates (Economic, Financial, Natural).
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor.
Long-Term Rating A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Rating Outlook A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
Receivables General term for economic benefit derived from an asset.
Securitisation Is 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.
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.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a detailed glossary of terms utilised in this announcement please click here

https://globalratings.net/uploads/files/2016-05_MBDCS_Rating_announcement.pdf

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