Global Credit Ratings (“GCR”) has accorded the following final, public long-term credit rating to the following Secured Class A Notes (“Class A Notes”) issued by MW Asset Rentals (RF) Ltd (the “Issuer”) (the “Transaction”) on 18 November 2016:
● Class A Notes, stock code MWAR01; R450,000,000; AAA(ZA)(sf) Stable Outlook.
GCR concurrently accorded the following final, public long-term credit rating to the following Notes issued by the Issuer on 29 March 2018 (“New Issuance”):
● Class A Notes, stock code MWAR02; R300,000,000; AAA(ZA)(sf) Stable Outlook.
The Issuer has increased the Subordinated Loan to R64,645,000 from R44,645,000 that is unrated and held by Merchant West (Pty) Ltd.
The final, 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.
MW Asset Rentals (RF) Ltd is a R2.5bn Lease Receivables Backed Note Programme that issued R450m of Class A Notes on 18 November 2016 and issued a further R300m of new Class A Notes on 29 March 2018. The Asset Cover Ratio covenant of 1.25x covenant was adhered to, however revised upwards to 1.28x for the Class A Notes at March 2018. Although the covenant has historically been maintained at higher levels, GCR has only considered its minimum contractual level for the purpose of its rating analysis.
The Transaction has a Liquidity Reserve, Capital Reserve and Arrears Reserve – all being maintained at their required limits since November 2016. The Liquidity Reserve may be utilised to fund payments of Liquidity Shortfalls, only the Liquidity Reserve and Arrears Reserve have been taken into account for credit enhancement to the Class A Notes. GCR has been provided with a pool cut per 28 February 2018 that reported R914.4m of assets and the expected portfolio at 31 March 2018 of R989.6m.
All receipts in respect of the Participating Assets and existing Assets held by the Seller are comingled in the Collections account which is administered by the Servicer on behalf of the Collections SPV, a bankruptcy report entity. Any disbursements from the Collections SPV are made towards the Issuer’s Transaction Account, held at Nedbank Ltd, within two business days, therefore minimising comingling risk.
The Originator, Seller and Servicer are Merchant West (Pty) Ltd, an asset-backed financier that offers tailored finance structured for finance leases, operating lease rentals, full maintenance leasing of office automation, ITC equipment, yellow metal equipment, vehicles, trucks and aviation to the public and corporate sector. Merchant West reported market comparable defaults albeit non-granular, however high to full recovery are usually realised within the first 24 months.
The February 2018 portfolio assets consist of a variety of assets with concentrations towards Office Equipment and IT Equipment (37.5%), Commercial and Agriculture (15.9%) and Mining/Construction (13.9%). Non-Government client leases are deemed non-performing if it’s in arrears for more than 90 days, whist Government client leases are deemed non-performing if it’s in arrears for more than 150 days. The Issuer reported bad debts of R8.4m (1.36% of total assets) at January 2018 per the Servicer Report.
|Class A Notes|
|Class A Notes|
Senior Structured Finance Analyst
+27 11 784 1771
Senior Structured Finance Analyst
Sector Head: Structured Finance Ratings
+27 11 784 1771
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, and
Nedbank Ltd Financial Institution Rating Report – May ’17.
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.|
|Bad Debt||A bad debt is an amount owed by a debtor that is unlikely to be paid when due, for example, to a company going into liquidation. This typically refers to default rather than delinquency.|
|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.|
|Capital||The sum of money that is used to generate proceeds.|
|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.|
|Credit Enhancement||Limited protection to a transaction against losses arising from the assets. The credit enhancement can be either internal or external. Internal credit enhancement may include: Subordination; over-collateralisation; excess spread; security package; arrears reserve; reserve fund and hedging. External credit enhancement may include: Guarantees; Letters of Credit and hedging.|
|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 X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|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.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Operating Lease||A lease where the risk and reward is not transferred.|
|Originator||An entity that created assets and hold on balance sheet for securitisation purposes.|
|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.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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.|
|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.|
|Servicer||A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.|
|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.|
|Stock Code||A unique code allocated to a publicly listed security.|
|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.
The Arranger 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 with no contestation of the ratings.
GCR has received the Programme Memorandum, First Amendments to the Programme Memorandum, Note Subscription Agreement, Applicable Pricing Supplement (MWAR01 & MWAR02), Sale Agreement, Servicing Agreement, First Amendments to the Servicing Agreement, Administration and Agency Agreement, Subordinated Loan Agreement, Account Bank Agreement, Preference Share Subscription Agreement, Preference Share Certificate, Common Terms Agreement, Settlement and Services Agreement, Security SPV Guarantee, Issuer Indemnity, Security Cession, Issuer Owner Trust Guarantee, Issuer Owner Trust Cession and Pledge, Security SPV Owner Trust Deed, Collections SPV Trust Deed, Collections SPV Administration Agreement.
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.