Johannesburg, 26 October 2018 — Global Credit Ratings (“GCR”) has affirmed the following final, public long-term credit ratings accorded to the following Secured Class A Notes (“Class A Notes”) issued by MW Asset Rentals (RF) Ltd (the “Issuer” or the “Transaction”):
● Class A Notes, stock code MWAR01; R450,000,000; AAA(ZA)(sf) Stable Outlook.
● Class A Notes, stock code MWAR02; R300,000,000; AAA(ZA)(sf) Stable Outlook.
GCR concurrently accorded the following indicative, public long-term credit rating to the following Class A Notes to be issued on or about 15 November 2018 (“New Issuance”) by the Issuer:
● Class A Notes, stock code MWAR03; R200,000,000; AAA(ZA)(sf) Stable Outlook.
The Issuer currently has a Subordinated Loan of R79,645,000 that is expected to increase by R70m upon the New Issuance. The Subordinated Loan is unrated and held by Merchant West (Pty) Ltd (“Merchant West”).
The final and indicative, public credit ratings accorded to the Class A Notes relate to timely payment of interest and ultimate payment of principal by their Final Redemption Date. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
In September 2018 GCR updated its Global Consumer Asset-Backed Securitisation (“ABS”) Rating Criteria, Global Master Structured Finance Rating Criteria and published research on its ABS Cash Flow Model. Of significant impact to the ratings of the Notes issued by the Issuer is the update of the Global Consumer ABS Rating Criteria, whereby GCR now applies country specific stresses to improve the comparability of its international ratings. GCR reviewed the Transaction according to the updated Global Master Structured Finance Rating Criteria and Global Consumer Asset-Backed Securitisation Rating Criteria, both updated in September 2018.
GCR considered the Cumulative Default Rates, Recovery Rates and their timing vectors for this Transaction by analysing the historical vintage data. The defaults and recoveries considered data from April 2009 to September 2018. There were however thirteen months of additional default and recoveries data utilised for the analysis that had a marginal effect on the initial base cases derived in March 2018. Although GCR noted a small improvement in its base case calculations, GCR conservatively used the initial base case assumptions for the analysis of the Transaction.
MW Asset Rentals (RF) Ltd is a R2.5bn Lease Receivables Backed Note Programme that previously issued R750m of Class A Notes. The Transaction is in its revolving phase and continues to acquire assets on a monthly basis. None of the Transaction’s Stop Purchase Triggers and Portfolio Covenants were breached over the review period covering March 2018 to August 2018. The Transaction’s Liquidity Reserve, Capital Reserve and Arrears Reserve were maintained at their required levels.
The Asset Cover Ratio (“ACR”) was maintained above the Stop Purchase Trigger of 1.28x (revised upwards from 1.25x in March 2018), albeit tracking close to the limit. The August 2018 ACR was reported at 1.284x. Arrears and NPLs have been stable over the review period. The twelve-month average ending August 2018 had 1.3% in “>30 to 90 days” and 1.1% in “> 90 days” bins. Written-off leases amounted to R10.2m for the twelve months ending February 2018. No further write-offs were incurred since then. Of the R10.2m, R2.6m (25.2%) was recovered by August 2018. The monthly excess spread since April 2018 continued to increase, closing off at 0.65% at August 2018.
The portfolio characteristics and industry exposure remained predominantly the same, August 2018 reported concentrations towards Office Equipment & IT Equipment at 35.5% (37.5% at February 2018) and Mining/Construction P&E at 14.4% (13.9% at February 2018). GCR noted the Structured Repayment Profile being very close to the covenant limit of 2.0%, reporting 1.9% for March 2018, although moderating to 1.6% at August 2018. GCR has been advised that this covenant may be revised. Additionally, the Unrated Leases displayed a strong upward trend, closing off at 2.1% for August 2018, with a covenant limit of 2.5%.
The ratings accorded to the MWAR01 and MWAR02 Notes (Class A Notes) are final, public national scale long term ratings, whilst the ratings accorded to the MWAR03 Notes (Class A Notes) are indicative, public national scale long term ratings. The indicative Rating for the MWAR03 Notes is valid until 22 November 2018.
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Senior Structured Finance Analyst
+27 11 784 1771
Structured Finance Analyst
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Sep ’18,
Global Consumer Asset-Backed Securitisation Rating Criteria – Sep ’18,
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17, and
Nedbank Ltd Financial Institution Rating Report – May ’18.
RATING LIMITATIONS AND DISCLAIMERS
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|Arrears||General term for non-performing obligations, i.e. obligations that are overdue.|
|Arrears Reserve||An accounting provision made in a reserve fund for arrears.|
|Asset||An item with economic value that an entity owns or controls.|
|Capital||The sum of money that is used to generate proceeds.|
|Cash Flow||A financial term for monetary changes in operations, investing and financing activities.|
|Concentrations||A high degree of positive correlation between factors or excessive exposure to a single factor that share similar demographics or financial instrument or specific sector or specific industry or specific markets.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|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.|
|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.|
|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.|
|Lease||Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|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.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Receivables||General term for economic benefit derived from an asset.|
|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.|
|Securitisation||Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.|
|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.|
|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.|
|Subordinated Loan||A loan typically given by the Issuer to the securitisation vehicle that is more junior than a junior tranche.|
|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.|
For a detailed glossary of terms utilised 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.
Merchant West (Pty) Ltd 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 Issuer.
GCR received the Portfolio Amortisation and Pool Cuts for the Existing Portfolio and Earmarked Portfolio at September 2018, Static Cumulative default and recovery data up to September 2018, Historic Prepayments up to July 2018, the Servicer Reports up to August 2018, Draft Applicable Pricing Supplements for the MWAR03 Class A Notes.
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.