Announcements

Nitro Securitisation 6 (RF) Limited – Indicative Ratings Accorded

Johannesburg, 7 March 2018 — Global Credit Ratings (“GCR”) has accorded indicative, public short-term and long-term credit ratings, as well as rating outlooks to the following securities to be issued by Nitro Securitisation 6 (RF) Limited (“Nitro 6” or the “Issuer”) in March 2018.

R1.00bn, Class A Notes stock code TBA, interest at 3M JIBAR + [●]%*, due March 2019: .………………………………………………… ‘A1+(ZA)(sf)’.

R1.36bn, Class B Notes, stock code TBA, interest at 3M JIBAR + [●]%*, due March 2026: .………………….………. ‘AAA(ZA)(sf)’, Outlook Stable.

R1.00bn, Class C Notes, stock code TBA, interest at 3M JIBAR + [●]%*, due March 2026: .………………….………. ‘AAA(ZA)(sf)’, Outlook Stable.

R400m, Class D Notes, stock code TBA, interest at 3M JIBAR + [●]%*, due March 2026: ……………………..………. ‘AA-(ZA)(sf)’, Outlook Stable.

R130m, Class E Notes, stock code TBA, interest at 3M JIBAR + [●]%*, due March 2026: .……..…………….……….‘BBB+(ZA)(sf)’, Outlook Stable.

R110m, Class F Notes, stock code TBA, interest at 3M JIBAR + [●]%*, due March 2026: ……………………….…….. ‘BB+(ZA)(sf)’, Outlook Stable.

The Issuer intends to also issue R80m in unrated Class G notes at 3M JIBAR + [●]%*, due March 2026. The issuance amounts stipulated in respect of the Notes are the maximum indicative amounts. The final issuance of Notes will be dependent on investor demand.

* Indicative margins were provided by the Arranger and utilised in GCR’s cash flow model.

RATING RATIONALE

Nitro 6 is a public securitisation of Instalment Sale Agreements (“ISAs”) originated by WesBank, a division of FirstRand Bank Limited, which has over 40 years of experience in the financial services industry. The proceeds of the rated note issuances will be used to purchase a portion of WesBank’s portfolio of ISAs, while the proceeds of the issue of the Class G Notes will be used to fund the Cash Reserve. The Class A Notes are referred to as the “Senior Notes”, and the Class B, Class C, Class D, Class E and Class F Notes are collectively referred to as the “Subordinated Notes”. The Class G Notes are not rated. The underlying ISAs were largely used to finance passenger vehicles.

The Issuer will only purchase performing assets. The preliminary portfolio data shows seasoned assets (weighted average seasoning of 22 months). Eligibility criteria, along with NCR compliance, provide an initial layer of protection, with the loans forming a part of the portfolio selected in compliance with these. The portfolio to be purchased is further characterised by its product spread with the portfolio including both fully amortising (60%) and higher risk balloon ISAs (40%) under which new (34.2%) and used (65.8%) motor vehicles were financed. However, GCR in its modelling exercise noted two significant mitigants, being the amortising nature of the Transaction and the extensive seasoning of the portfolio which resulted in a significant portion of default risk having lapsed.

In order to gauge the underlying performance of the ISA pool, GCR was provided with performance data for the ISAs originated by WesBank for the period from Q1 2008 to Q2 2017 and performed several scenario analyses in order to determine the base case default and recovery rates. This is in line with GCR’s Global Consumer ABS Rating Criteria. GCR was also provided with the latest Asset Pool cut as at 30 September 2017. Given the nature of the ISA portfolio, GCR factored these specific characteristics into its modelling approach by proportioning and weighting its cumulative default base cases and cumulative recovery base cases accordingly. GCR then determined the appropriate stress levels for each rating band and tested the credit enhancement provided to each tranche of the Senior and Subordinated Notes, for the respective rating levels. Should there be a significant change in the characteristics of the ISAs to be included in the pool at Transaction Closing, GCR will re-assess the sufficiency of its base case assumptions.

In its analysis, GCR noted that Value Added Products (“VAPs”) are offered to the underlying obligors and can be taken up at any stage of the ISA. GCR performed an analysis to gauge the quantum and potential impact of these VAPs as they form an additional source of revenue, but also inflate the potential principal outstanding amount on default, which could negatively impact on recoveries. GCR notes that this additional risk was incorporated in the historical data provided by the Arranger and therefore incorporated by GCR in determining its base cases (base cases were prepared on data for WesBank as a whole, and therefore not subject to the eligibility criteria imposed on the Nitro transactions). GCR will monitor VAPs levels in the portfolio and may take rating action should these be deemed to be in excess of historically observed levels. GCR then relied on a cash flow model to determine if the cash flows from the securitised asset portfolio would be sufficient to service the payments under the Senior and Subordinated Notes in all the relevant rating scenarios. For more information, please read the Nitro Securitisation 6 (RF) Limited Pre-Funding Report to be published on 7 March 2018.

The indicative, public credit ratings accorded to the ‘A1+(ZA)(sf)’ and the ‘AAA(ZA)(sf)’ rated securities relate to timely payment of interest and ultimate payment of principal by the legal Final Maturity Date of the Notes. The ratings accorded to all the other securities relate to ultimate payment of interest and principal by the legal Final Maturity Date of those Notes. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

RATINGS HISTORY

Stock code
Initial/New rating
Long term rating
Rating outlook
Class A
7 March ’18
A1+(ZA)(sf)
N.a.
Class B
7 March ’18
AAA(ZA)(sf)
Stable
Class C
7 March ’18
AAA(ZA)(sf)
Stable
Class D
7 March ’18
AA-(ZA)(sf)
Stable
Class E
7 March ’18
BBB+(ZA)(sf)
Stable
Class F
7 March ’18
BB+(ZA)(sf)
Stable

ANALYTICAL CONTACTS

Primary Analyst

Mark Vrdoljak

Senior Structured Finance Analyst

+27 11 784 1771

markvrd@globalratings.net

Secondary Analyst

Tinashe Mujuru

Structured Finance Analyst

+27 11 784 1771

tinashem@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, updated February ’17.
  • Global Consumer Asset Backed Securitisation (“ABS”) Rating Criteria, May ’17.
  • FirstRand Rating Report, published in November 2017

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

Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
Arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
Asset An item with economic value that an entity owns or controls.
Cash Flow A financial term for monetary changes in operations, investing and financing activities.
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.
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.
Default 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).
Eligibility Criteria Limitations imposed on the type and quality of assets that can be sold by the Originator / Servicer into the Securitisation vehicle which ensure the transaction will track the performance of historical data analysed as closely as possible.
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.
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.
Obligor The party indebted or the person making repayments for its borrowings.
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.
Proceeds Funds from issuance of debt securities or sale of assets.
Rated Securities Debt securities that have been accorded a credit rating.
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).
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
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.
Seasoning The age of an asset, the time period passed since origination.
Securities Various instruments used in the capital market to raise funds.
Securitisation Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
Senior A security that has a higher repayment priority than junior securities.
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.
Tranche In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.
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 FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings was 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 rating document.

The Issuer and 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 Issuer and the Arranger with no contestation of the ratings.

The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

The information received from the Arranger (RMB) and other reliable third parties to accord the credit ratings included:

  • Static Loss Data for the period between Q1 2008 and Q2 2017.
  • Static Loss Recovery Data for the period between Q1 2008 and Q3 2016.
  • Quarterly prepayment rates for the period between Q1 2008 and Q2 2017.
  • A cut off pool as at 30 September 2017.
  • An overview of the expected annual senior costs for the Issuer.
  • Draft Account Bank Agreement.
  • Draft Sale Agreement.
  • Draft Offering Circular.
  • Draft Servicing Agreement.
  • Draft Guarantee Agreement.
  • Draft Common Terms Agreement.
  • Draft Administration Agreement.
  • Draft Indemnity Agreement.
  • Draft Agency Agreement.
  • Draft Security Cession Agreement.
  • Draft Legal Opinion.
  • Audit Opinion.
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