Announcements Rating Alerts Structured Finance

GCR upgrades national scale issue ratings on South African Securitisation Programme (RF) Limited – Series 2. Outlook Stable.

Rating Action

21 June 2019 – GCR Ratings (“GCR”) has upgraded the public long-term credit ratings accorded to the Class A2 Notes listed below, issued by the South African Securitisation Programme (RF) Limited – Series 2 (“SASP 2”, or the “Issuer”), to ‘AAA(ZA)(sf)’ from ‘AA(ZA)(sf)’ with a stable outlook, the Class B2 Notes to ‘AA+(ZA)(sf)’ from ‘A(ZA)(sf)’ with a stable outlook and the Class C2 Notes to ‘AA-(ZA)(sf)’ from ‘BBB(ZA)(sf)’ with a stable outlook. The upgrades reflect the positive impact of the updates of the rating stresses under the Global Consumer Asset-Backed Securities (“ABS”) Rating Criteria, the amended base case assumptions and the amended transaction documents (which were amended to align with GCR’s updated Criteria).

Security Class Stock Code Amount Rating class Rating scale Rating Outlook / Watch
Class A2 LRFA2 R280,000,000 Issue Long Term National AAA(ZA)(sf) Stable Outlook
Class B2 LRFB2 R52,500,000 Issue Long Term National AA+(ZA)(sf) Stable Outlook
Class C2 LRFC2 R17,500,000 Issue Long Term National AA-(ZA)(sf) Stable Outlook

The final public ratings accorded 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 accorded 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 by the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

Rating Rationale

SASP 2 is a revolving series and 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 Limited (“Sasfin”). SASP 2 is primarily made up of capital assets leases, while SASP 1 and SASP 3 primarily comprise office equipment leases. 

In assessing the counterparty risk as per GCR’s updated Global Structured Finance Rating Criteria, GCR noted certain discrepancies (see SASP 2 Surveillance report issued in June 2019). The transaction documents have been amended to be aligned with GCR’s criteria. GCR deems the amendments to be sufficient to mitigate the anticipated risks.

GCR modelled the transaction in a Pre-Enforcement Amortisation scenario as per the updated Global Master Structured Finance Rating Criteria. The transaction was previously modelled in a Post-Enforcement scenario. In addition, the cumulative default and recovery base cases were amended to reflect the observed historical performance and to enhance the comparability of ratings assigned by GCR. It is important to note that given the obligor concentration limits allowed under the transaction documents, such concentrations drove the stressed cumulative default assumptions made by GCR.

For more information in respect of the transaction and GCR’s analysis, please refer to the SASP 2 Surveillance Report published in June 2019, as well as the SASP 2 New Ratings Report published in November 2016. GCR analysed the transaction by applying its Global Master Structured Finance Rating Criteria (Sep’18) and Global Consumer Asset-Backed Securitisation Rating Criteria (Sep’18); with reference to its updated cash flow model report and Sasfin Bank Limited Rating Report (May’18).

Analytical Contacts

Primary Analyst Tinashe Mujuru Structured Finance Analyst
Johannesburg, ZA tinashem@GCRratings.com +27 11 784 1771
     
Secondary Analyst Gary Nyoni Structured Finance Analyst
Johannesburg, ZA garyn@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

Global Master Structured Finance Rating Criteria, Sep 2018
Global Consumer Asset-Backed Securitisation Rating Criteria, Sep 2018
SASP Series 2 Surveillance Report, Jun 2019
SASP Series 2 Surveillance Report, Jun 2018
SASP Series 2 New Issuance Report, Nov 2016

Ratings History

South African Securitisation Programme (RF) Limited – Series 2

Security class Stock code National Long-Term Rating Outlook Initial Rating
Class A LRFA2 AA(ZA)(sf) Stable Nov. 2016
Class B LRFA2 A(ZA)(sf) Stable Nov. 2016
Class C LRFA2 BBB(ZA)(sf) Stable Nov. 2016
Security class Stock code National Long-Term Rating Outlook Last Rating
Class A LRFA2 AA(ZA)(sf) Stable Nov. 2018
Class B LRFA2 A(ZA)(sf) Stable Nov. 2018
Class C LRFA2 BBB(ZA)(sf) Stable Nov. 2018

Glossary of Terms/Acronyms

Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
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).
Applicable Pricing Supplement A transaction document that describes the particulars of notes issued.
Arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
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.
Credit Rating Agency An entity that provides credit rating services.
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.
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
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.
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.
National Scale Rating National scale ratings measure creditworthiness relative to issuers and issues within one country.
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.
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.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Public Ratings See GCR Rating Scales, Symbols and Definitions.
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.
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.
Senior A security that has a higher repayment priority than junior securities.
Servicer A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.
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.
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.
Upgrade The rating has been raised on its specific scale.

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 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 credit rating document.

The credit rating has been disclosed to the Arranger. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

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 rating included:

  • Pool Cut for the Portfolio at February 2019;
  • Static Cumulative default and recovery data up to quarter ending March 2019;
  • Historic Prepayments up to February 2019;
  • Senior Expenses information;
  • Final signed Addendum to the Series 2 Bank Agreement;
  • Final signed Addendum to the Series 2 Servicer Agreement;
  • Draft Supplement to the Series Supplement, and
  • SASP 2 Surveillance Reports up to April 2019.
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