Announcements

Global Asset Backed Commercial Paper Rating Criteria – Revised Methodology Published

Johannesburg, 30 November 2017 — Global Credit Ratings (“GCR”) has published an updated Global Asset Backed Commercial Paper (“ABCP”) Rating Criteria.

GCR has updated its Global Asset Backed Commercial Paper Rating Criteria (the “Criteria”). The Criteria lays down the fundamental considerations for any ABCP transaction rated by GCR. There are a number of different types of ABCP programme structures and support mechanisms, which are detailed in this Criteria. An ABCP is rated by analysing (i) the conduit and transaction structure, (ii) the capabilities of the sponsor and administrator as well as an analysis of the sponsor’s investment guidelines and (iii) an analysis of the underlying collateral. ABCP programmes are accorded a short term rating, which reflects the short term exposure to default of the rated entity and its capacity to meet its financial obligations within a 12 month period. ABCP is short term debt, issued on a discount or interest-bearing basis, with a maturity not exceeding 364 days. ABCP ratings accorded by GCR are in respect of timely repayment of both principal and interest.

An ABCP programme is typically structured as a bankruptcy-remote special purpose vehicle (“SPV”) that issues commercial paper (“CP”). The proceeds of such issuance are used to finance interests in various assets / securities via a traditional asset purchase or a secured loan. ABCP programmes, in general, issue short term liabilities to fund long term assets with structural mechanics to cover potential repayment shortfalls caused by timing mismatches. Typically the pools of assets are revolving, with no scheduled amortisation. An ABCP programme typically funds multiple and varied asset types creating a diversified portfolio.

The Criteria is an update to the version published in September 2016. There are no significant amendments to the Criteria. The update of this Criteria will not have an impact on any existing transactions that have been rated under it. Going forward, all new transactions will be rated using this updated Criteria.

The updated Criteria is available at www.globalratings.net.

ANALYTICAL CONTACTS

Primary Analyst

Yohan Assous

Sector Head: Structured Finance Ratings

+27 11 784 1771

yohan@globalratings.net

Committee Chairman

Marc Chadwick

Sector Head: Insurance Ratings

+27 11 784 1771

chadwick@globalratings.net

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/RATING-SCALES-DEFINITIONS. 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.

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

Administrator A transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance.
Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
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).
Asset An item with economic value that an entity owns or controls.
Bankruptcy Court proceedings at which an individual or a company is declared unable to pay its creditors. The liability of a bankrupt company typically exceeds its assets.
Bankruptcy Remote A feature, through real security and guarantees that reduces the enforceability of a creditor against a Special Purpose Vehicle. Typically a Security Special Purpose Vehicle should be bankruptcy remote.
Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Borrower The party indebted or the person making repayments for its borrowings.
Capital The sum of money that is used to generate proceeds.
Capital Markets The part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term debt securities.
Claim A formal request or demand.
Collateral An asset pledged as security in event of default.
Commercial Paper A debt security of short term nature, less than a year.
Conduit A commercial lending entity that is established to purchase assets to securitise.
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.
Credit Risk The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).
Creditor A credit provider that is owed debt obligations by a debtor.
Creditworthiness An assessment of a debtor’s ability to meet debt obligations.
Debt An obligation to repay a sum of money.
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.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
Guarantee An undertaking for performance of another’s obligations in event of default.
Insurance Provides protection against a possible eventuality.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Issuer The party indebted or the person making repayments for its borrowings.
Lender A credit provider that is owed debt obligations by a debtor.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
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.
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.
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.
Loss A tangible or intangible, financial or non-financial loss of economic value.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
Obligor The party indebted or the person making repayments for its borrowings.
Pledge Constituted by an agreement between the pledgor, who undertakes to deliver the article, and the pledgee, and subsequent delivery of the property in question as security for debt. A pledge is only applicable to movable property.
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.
Property Movable or immovable asset.
Provision An amount set aside for expected losses to be incurred by a creditor.
Ranking A priority applied to obligations in order of seniority.
Redemption The repurchase of a bond at maturity by the issuer.
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.
Securities Various instruments used in the capital market to raise funds.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Short-Term Rating A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
Special Purpose Vehicle An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.
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.
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.

For a detailed glossary of terms, please click here.

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