Johannesburg, 3 July 2019 – GCR Ratings (“GCR”) has affirmed the following long-term credit rating accorded to the Secured Class B Notes (“Class B Notes”) issued by Mmela Mobility Finance (RF) Ltd (“MMF”, the “Issuer” or the “Transaction”), Rating Watch Evolving. GCR concurrently affirmed the following long-term credit rating accorded to the following Secured Class C Notes (“Class C Notes”), Rating Watch Negative. The review of the ratings follows the surveillance of the performance of the Transaction by GCR.
|Security Class||Stock Code||Amount Outstanding||Rating class||Rating scale||Rating||Watch|
|Class B Notes||MMF201||R24,105,144||Issue Long Term||National||BB(ZA)(sf)||Rating Watch Evolving|
|Class C Notes||MMF301||R12,325,527||Issue Long Term||National||B-(ZA)(sf)||Rating Watch Negative|
The Transaction has Class D Notes of R8,000,000 that are unrated and held by Mmela Financial Services (Pty) Ltd (“MFS”).
The credit ratings accorded to the Class B Notes and Class C Notes 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.
MMF is a R3bn Auto Loan Asset-Backed Note Programme that Issued R435m worth of Notes in July 2017. Please refer to all of the subsequent Ratings Announcements and reports published.
The Transaction is in its pre-enforcement amortising phase, by Extraordinary Resolution No 1 of March 2018, and continues to pay interest and principal on a monthly basis in respect of the Class B Notes, which are now the most senior notes outstanding. The Issuer redeemed the Class A Notes in May 2019. Following on from the June 2019 Priority of Payments, the Issuer has R24,105,144 worth of Class B Notes outstanding. The Issuer also has R12,325,527 worth of Class C Notes outstanding exclusive of R1,557,500 in deferred interest. Resulting in 10,2% of the original issued notes remain outstanding.
At 15 May 2019, the Issuer reported R50.7m worth of Instalment Sale Agreement (“ISA”) as well as R3.2m worth of ISA with credit balances (c. 3,600). The Issuer had R5.3m in the account bank following the June 2019 Priority of Payments, of which the credit balances are reserved by the Issuer.
GCR understands these credit balance accounts to have been originated under the previous securitisation (On-The-Go Vehicle Finance (RF) Ltd) from which the initial pool of assets was purchased. In addition the loan administration system changeover from MFS to CSS Credit Solutions Services (Pty) Ltd caused by the Servicer Event of Default also contributed to the credit balances. There are ISA where the final payroll deduction is in excess of the final settlement amount and even continuing past the contractual maturity date.
As corrective action, the Administrator, CSS and Singular Systems are reconciling the ISAs, albeit a small number are processed on a monthly basis. Such reconciliations are independently verified before being refunded to the borrower and government, where applicable. Commingling risk was noted from a small number technical Non-Performing Loans (“NPL”) accounts where the final settlement proceeds have not been paid to the Issuer and remained outstanding for a prolonged period.
The portfolio’s proportion of arrears and NPL accounts have been increasing on a relative basis, albeit reducing on a nominal basis. This the due to the natural amortisation of the portfolio. GCR calculated the six-month average accounts in arrears at R8.4m, closing at R6.4m (12,6%) in May 2019, whilst the six-month average NPL was R2.8m, closing at R2.7m (5,4%) in May 2019.
The Transaction’s tail end risk will continue to become more pronounced given the dwindling monthly cash-flows that would see elevated redemption risk for the Class B Notes and more so the Class C Notes given the contractual senior expenses.
GCR was advised that there have been no changes to the standing and roles of the various Transaction parties under the Transaction since the Rating Announcement released by GCR in December 2018. GCR therefore maintained the ratings accorded whilst revising the Rating Watches assigned to the Notes to align with GCR’s Rating Scales, Symbols and Definitions published in May 2019.
GCR took note of the events after the reporting date per the 28 February 2019 Annual Financial Statements of the Issuer, which may bode positively for the Noteholders.
|Primary analyst||Corné Els||Senior Structured Finance Analyst|
|Johannesburg, ZA||corneE@GCRratings.com||+27 11 784 1771|
|Secondary analyst||Yehuda Markovitz||Structured Finance Analyst|
|Johannesburg, ZA||yehudam@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, updated September 2018|
|Global Consumer Asset Backed Securitisation (ABS) Rating Criteria, updated September 2018|
|Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2017|
|Mmela Mobility Finance (RF) Ltd New Issuance Report, July 2017 and its subsequent Ratings Announcements|
|Nedbank Ltd Financial Institution Rating Report, May 2018|
Mmela Mobility Finance (RF) Ltd
|Security class||Stock code||Review||Rating scale||Rating class||Outlook/Watch||Date|
|Class B Notes||MMF201||Initial||National||A-(ZA)(sf)||Stable||Jul. 2017|
|Last||National||BB(ZA)(sf)||Rating Watch||Dec. 2018|
|Class C Notes||MMF301||Initial||National||BB(ZA)(sf)||Stable||Jul. 2017|
|Last||National||B-(ZA)(sf)||Rating Watch||Dec. 2018|
|Account Bank||A bank where the transaction account is held.|
|Administration||A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates’ Court Act 32 of 1944 (South Africa).|
|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.|
|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||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||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.|
|Borrower||The party indebted or the person making repayments for its borrowings.|
|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.|
|Contract||An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.|
|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 90 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.|
|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.|
|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.|
|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.|
|National Scale Rating||National scale ratings measure creditworthiness relative to issuers and issues within one country.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Performing||An obligation that performs according to its contractual obligations.|
|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.|
|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.|
|Rating Watch||See GCR Rating Scales, Symbols and Definitions.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|Release||An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.|
|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.|
|Reserve||(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
|Settlement||Full repayment of an obligation.|
|Stock Code||A unique code allocated to a publicly listed security.|
|Surveillance||Process of monitoring a transaction according to triggers, covenants and key performance indicators.|
|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.|
SALIENT POINTS 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 are for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The credit ratings have been disclosed to Issuer and Administrator. The ratings above were solicited by, or on behalf of, the Issuer, and therefore, GCR has been compensated for the provision of the ratings.
Issuer participated in the rating process via face-to-face management meetings, teleconferences and/or other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Issuer and other reliable third parties to accord the credit ratings included:
- Mmela Mobility Finance (RF) Ltd of April and May 2019 Pool Reports;
- Arrears and NPL from October 2018 to May 2019;
- Priority of Payments for June 2019;
- SENS announcements.