Announcements

Mmela Mobility Finance (RF) Limited – Ratings Downgraded, Rating Watch Maintained

Johannesburg, 18 July 2018 — Global Credit Ratings (“GCR”) has downgraded the final, public long-term credit ratings of the following Notes issued by Mmela Mobility Finance (RF) Ltd (“the Issuer” and “the Transaction”):

● Secured Class A Notes, stock code MMF101; R230,941,450; 3 Month JIBAR + 2.400%; BBB-(ZA)(sf) Rating Watch;

● Secured Class B Notes, stock code MMF201; R33,733,021; 3 Month JIBAR + 3.300%; BB(ZA)(sf) Rating Watch; and

● Secured Class C Notes, stock code MMF301; R12,325,526; 3 Month JIBAR + 6.600%; B-(ZA)(sf) Rating Watch.

The Transaction has Class D Notes of R8,000,000 that are unrated and held by Mmela Financial Services (Pty) Ltd (“MFS”).

The final, public credit ratings accorded to the Secured Class A Notes relate to timely payment of interest and ultimate payment of principal, whilst the ratings on all other securities relate to ultimate payment of interest and ultimate payment of principal. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

RATING RATIONALE

Following the Noteholders meeting on 12 July 2018, the majority of Noteholders voted, amongst others, to bring the Transaction’s Amortisation date forward to July 2018. The Step-Up coupon has become effective since 17 July 2018.

GCR viewed the transaction Non-Performing Loans (“NPLs”) well below the base case. However, a notable increase of arrears from March 2018, reporting 6.75% of accounts in arrears status at May 2018, albeit the bulk of this was reported in current arrears status.

The original servicer (MFS) recently commenced with the handover of the accounts in arrears to CSS Credit Solutions Services (Pty) Ltd (“CSS”), as the current servicer. GCR understands that both parties agreed to an interim solution during the handover where both MFS deal with early stage collections until such time as relevant information is handed over to CSS to enable them to perform this function, which is not in line with the original transaction documentation. GCR was informed that a new Servicing Agreement between the parties is being agreed upon to contractually bind MFS, CSS and the Issuer to a new set of terms. GCR did not have sight of this document as yet.

The Transaction’s exposure to an Excess Spread Trigger Event is elevated due to the step-up coupon being in force – an Event of Default, given the current low level of excess spread. GCR was advised that the Issuer will purchase the last pool of assets in July 2018.

GCR downgraded the ratings of the Notes based on the following considerations:

  • In light of recent information shared with GCR, it has become apparent that should MFS no longer be in existence, the absence of a fluid transition to a back-up servicer may cause a disruption in the cash flows. In this regard, elevated transition risk stems from the period wherein CSS would fully take over its role as primary servicer, which necessitates, amongst others, to obtain the relevant authorisations to access the Q-Link system (which allows the payroll deduction of the instalments owed by the borrowers). This increases the exposure of the Noteholders to operational and financial risks linked to MFS.
  • The Non-adherence by certain parties to the Transaction documentation initially reviewed by GCR. GCR is of the view that this may create uncertainty for the future performance of the transaction.
  • The transition phase between the servicers caused the sharing of Servicing responsibilities on a piecemeal basis, which is deemed sub-optimal for the Transaction.
  • The late execution of NPLs curtailed collections.

    • Since the last review, GCR had various communications with the different parties to the transaction which are MFS, CSS, the Administrator and the Issuer.

    GCR will continue to monitor the Transaction insofar as it relates to timely payment of interest and ultimate payment of principal on the Secured Class A Notes and the ultimate payment of interest and ultimate payment of principal of the other rated securities.

    RATINGS HISTORY

    Security class
    Stock code
    Initial and Last Rating
    Long-term Rating
    Short-term Rating
    Outlook
    Secured Class A Notes
    MMF101
    14 July 2017
    AAA(ZA)(sf)
    n.a
    Stable
    Secured Class B Notes
    MMF201
    14 July 2017
    A-(ZA)(sf)
    n.a
    Stable
    Secured Class C Notes
    MMF301
    14 July 2017
    BB-(ZA)(sf)
    n.a
    Stable

    ANALYTICAL CONTACTS

    Primary analyst

    Corné Els

    Senior Structured Finance Analyst

    +27 11 784 1771

    corneE@globalratings.net

    Secondary analyst

    Mark Vrdoljak

    Senior Structured Finance Analyst

    +27 11 784 1771

    markvrd@globalratings.net

    Committee Chairperson

    Yohan Assous

    Sector Head: Structured Finance Ratings

    +27 11 784 1771

    yohan@globalratings.net

    APPLICABLE METHODOLOGIES AND RELATED RESEARCH

    Global Master Structured Finance Rating Criteria – Feb ’17,

    Consumer Asset Backed Securitisation Rating Criteria – May ’17,

    Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17,

    Mmela Mobility Finance (RF) Limited New Issuance Report – Jul ’17;

    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).
    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.
    Borrower The party indebted or the person making repayments for its borrowings.
    Cash Flow A financial term for monetary changes in operations, investing and financing activities.
    Coupon Interest payment on a security.
    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.
    Downgrade The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.
    Excess Spread The net weighted average interest rate receivable on a pool of assets being greater than the weighted average interest rate payable for the debt securities.
    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.
    Instalment Payment made to honour obligations in regards to a credit agreement in the following credited order: 1.) Satisfy the due or unpaid interest charges; 2.) Satisfy the due or unpaid fees or charges; and To reduce the amount of the principal debt.
    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.
    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.
    Noteholder Investor of capital market securities.
    Performing An obligation that performs according to its contractual obligations.
    Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
    Rated Securities Debt securities that have been accorded a credit rating.
    Rating Watch Indicates that a rating is under review for possible change in the short term and the movement may be either positive or negative.
    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.
    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.
    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.
    Spread The interest rate that is paid in addition to the reference rate for debt securities.
    Stock Code A unique code allocated to a publicly listed security.
    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.
    Trigger Event An event caused by transactional performance or environmental changes that would impact a transaction.
    Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.

    For a detailed glossary of terms please click here.

    SALIENT FEATURES OF ACCORDED RATINGS

    GCR affirms that a.) no part of the ratings were 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; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit ratings document.

    The Arranger, Administrator, Issuer and Servicer participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

    The credit ratings have been disclosed to the Arranger, Administrator, Issuer and Servicer with no contestation of the ratings.

    GCR has received, amongst others:

  • Investor Report for the quarter ending 31 May 2018;
  • Reconciliation of accounts collect by CSS and MFS;
  • Loan Book at May 2018;
  • Amortisation profile at June 2018;
  • Priority of Payment for 16 July 2018, with the bank balances at 20 June 2018;
  • Letter of Undertaking (dated 30 June 2018) from MFS to provide all relevant information and data in relation to the Q-Link output information to the Administrator.

    • The ratings above were solicited by, or on behalf of the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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