Johannesburg, 11 March 2016 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term credit ratings of the securities mentioned below (the ‘Class A Notes’ and the ‘Class B Notes’), with a Negative Outlook accorded to these rated securities:
|R 77,521,994||Class A Notes, interest at 3M JIBAR + 2.70%, due 28 May 2020 – ‘A(ZA)(sf)’, Negative Outlook.|
|R 10,355,992||Class B Notes, interest at 3M JIBAR + 5.00%, due 28 May 2020 – ‘BBB(ZA)(sf)’, Negative Outlook.|
The Negative Outlook is reflective of GCR’s view on the unsecured loan market. Nyati Securitisation (the ‘Transaction’) is a securitisation of personal loans originated by Real People (Pty) Limited through its merchant distribution channel and advanced to debtors residing in South Africa. The final, public credit ratings accorded to the Class A Notes and Class B Notes relate to timely payment of interest and ultimate repayment 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.
The Transaction performed satisfactorily over the Review Period. The Transaction is currently in its Amortisation Period (started 29 November 2014). The first quarterly principal repayment of the Notes occurred on 27 February 2015 (R47.5m of the Class A Notes, R6.3m of the Class B Notes and R10.2m of the Class C Notes), the second quarterly principal repayment of the Notes occurred on 28 May 2015 (R40.3m of the Class A Notes, R5.4m of the Class B Notes and R8.6m of the Class C Notes), the third quarterly principal repayment of the Notes occurred on 28 August 2015 (R36.9m of the Class A Notes, R4.9m of the Class B Notes and R7.9m of the Class C Notes), the fourth quarterly principal repayment of the Notes occurred on 30 November 2015 (R32.4m of the Class A Notes, R4.3m of the Class B Notes and R6.9m of the Class C Notes) and the most recent quarterly principal repayment of the Notes occurred on 28 February 2016 (R27.4m of the Class A Notes, R3.7m of the Class B Notes and R5.9m of the Class C Notes). The Transaction has been prepaying ahead of expectations, currently 29.6% of the original Notes are outstanding.
The loan portfolio declined from R366.0m as at 31 October 2015 to R342.9m as at 31 January 2016 (32,184 accounts) which includes both active and inactive contracts.
The total gross non-performing loans (NPLs) in the portfolio increased from 34.82% (31 July 2014) to 38.97% (31 October 2014) to 43.46% (31 January 2015) to 51.44% (30 April 2015) to 56.84% (31 July 2015) to 66.43% (31 October 2015) and further to 73.16% (31 January 2016). Furthermore, the 31 January 2016 management accounts reported an impairment provision of R15.1m and Net Advances as R131.3m (R82.4m Performing Loans, R28.2m NPL, R20.1m Written off and R0.6 Other advances amounts). Write-offs’ were R19.0m at 30 November 2015, R19.5m at 31 December 2015 and R20.1m at 31 January 2016. The Transaction has R87.9m Class A and B Notes outstanding, coupled with R92.0m performing loans.
The portfolio’s collectability has deteriorated as a result of rapid deterioration of the loan book to NPL status. However, this has been factored into GCR’s roll rate model. The current collections rates are positive.
GCR will be reviewing this transaction on a quarterly basis and will take rating action where deemed necessary. Cash flow collectability and NPLs will form part of that review.
The Seller/Servicer is a wholly owned subsidiary of the Real People Investment Holdings Group (‘RPIH’). On 1 July 2015, GCR affirmed RPIH’s long-term and short-term ratings of ‘BB+(ZA)’ and ‘B(ZA)’ respectively with a Negative outlook. The rating action on RPIH did not affect the ratings of the Notes as the performance of RPIH’s home finance loans, which also make up Nyati Securitisation’s loan portfolio, remained well within expectations.
RPIH currently has a Primary Servicer Quality Rating of ‘SQ2(ZA)’ and a Special Servicer Quality Rating of ‘SQ2+(ZA)’ with a Negative Outlook. GCR reviewed the Primary and Special Servicer Quality Ratings on 1 July 2015 and there were no changes to the rating accorded, with a Negative outlook maintained. This rating is reflective of Real People’s ability to service the Transaction. GCR met with RPIH in June 2015. Real People displayed a cutback in the number of loans originated.
Structured Finance Analyst
+27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Structured Finance Rating Criteria – Feb ’16 and a tailored stressed collections approach;
RATING LIMITATIONS AND DISCLAIMERS
|Advance||A lending term, to transfer funds from the creditor to the debtor.|
|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).|
|Amortisation Period||A period that may follow the Revolving Period of a transaction, during which the outstanding balance of the related securities may be partially repaid.|
|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.|
|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.|
|Claim||A formal request or demand.|
|Conduit||A commercial lending entity that is established to purchase assets to securitise.|
|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||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|
|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 Rating Agency||An entity that provides credit rating services.|
|Credit 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).|
|Creditor||A credit provider that is owed debt obligations by a debtor.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Debt||An obligation to repay a sum of money.|
|Debtor||The party indebted or the person making repayments for its borrowings.|
|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.|
|Enforceable||To make sure people do what is required by a law or rule et cetera.|
|Impairment||An amount set aside for expected losses to be incurred by a creditor.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|JIBAR||Johannesburg Interbank Agreed Rate. A reference rate.|
|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.|
|Legal Opinion||An opinion regarding the validity and enforceability of a transaction’s legal documents.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|Lessee||The party that enjoys temporary use of a corporeal thing.|
|Lessor||The owner or agent that acts on behalf of the owner of property that grants the temporary use of a corporeal thing.|
|Liability||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Lien||A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|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.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Mortgage Loan||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.|
|Mortgagee||A creditor under a mortgage agreement.|
|Obligation||The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.|
|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.|
|Property||Movable or immovable asset.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|Ranking||A priority applied to obligations in order of seniority.|
|Rated Securities||Debt securities that have been accorded a credit rating.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|Reference Rate||A rate that is the basis of the calculation such as JIBAR.|
|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.|
|Revolving period||A period whilst all transaction covenants are adhered and no enforcement takes place. A going concern basis.|
|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.|
|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.|
|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.|
|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.|
|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.|
|Surveillance||Process of monitoring a transaction according to triggers, covenants and key performance indicators.|
|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.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
|Waterfall||In securitisation, the order in which the cash flows are allocated to the transaction parties.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Issuer participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to the Issuer with no contestation of the ratings.
The information received from the Issuer, Arranger and other reliable third parties to accord the credit ratings included the signed executed transaction documents together with the relevant signed legal opinion; the Issuer’s management accounts for the period May 2013 to January 2016 and quarterly waterfall reports for the quarters ending 28 August 2013, 28 November 2013, 28 February 2014, 28 May 2014, 28 August 2014, 28 November 2014, 27 February 2015, 28 May 2015, 28 August 2015, 30 November 2015 and 29 February 2016.
The rating/s above were solicited by the Issuer and Arranger of the Transaction; GCR has been compensated for the provision of the ratings.