Johannesburg, 15 September 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’), issued by Nyati Securitisation 1 (RF) Ltd (the ‘Issuer’), with a Negative Outlook accorded to these rated securities:
|R34,678,443||Class A Notes, interest at 3M JIBAR + 2.70%, due 28 May 2020 – ‘A(ZA)(sf)’, Negative Outlook.|
|R4,632,616||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 the 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 Issuer also issued Class C Notes pursuant to the Transaction, which are not rated.
The Transaction performed satisfactorily over the Review Period (1 May 2016 to 31 July 2016). The Transaction is currently in its Amortisation Period (started 29 November 2014). The most recent quarterly principal repayment occurred on 29 August 2016 (R18.9m of the Class A Notes, R2.5m of the Class B Notes and R4.0m of the Class C Notes). The Transaction has been prepaying ahead of expectations and currently 13.2% of the original Notes issued remains outstanding.
The closing balance on the loan portfolio declined from R342.9m at 31 January 2016 to R322.4m at 30 April 2016 and further to R304m as at 31 July 2016. This was coupled with a reduction in the total number of loan accounts from 29,041 accounts in April 2016 to 28,362 accounts in July 2016, which includes both active and inactive contracts.
The total gross non-performing loans (NPLs) in the portfolio have consistently increased from quarter to quarter, being reported at an average of 36.9% in 2014 and an average of 54.5% in 2015. In January 2016 NPLs constituted 73.16% of the portfolio and further increased to 78.33% in April 2016, finally ending the review period at a higher 82.94% as at 31 July 2016. Net Advances as at 31 July 2016 were R93.3m (R44.9m Performing Loans, R23.5m NPL, R24.0m Written Off and R0.9m Other advance amounts). Despite reporting relatively higher NPLs, the impairment provision was reported at a review period low of R0.2m as at 31 July 2016.
The portfolio’s collectability continued to deteriorate as a result of a rapid increase of the NPL status of the loan book. However, this has been factored into GCR’s roll rate model and the current collections rates remained 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’). In July 2016, GCR affirmed RPIH’s long-term and short-term ratings of ‘BB+(ZA)’ and ‘B(ZA)’ respectively with a Stable Outlook accorded. 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 Stable Outlook. GCR reviewed the Primary and Special Servicer Quality Ratings in July 2016 and there were no changes to the rating accorded. This rating is reflective of Real People’s ability to service the Transaction.
Structured Finance Analyst
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Sector Head: Structured Finance Ratings
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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.|
|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.|
|Cash Flow||A financial term for monetary changes in operations, investing and financing 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.|
|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.|
|Impairment||An amount set aside for expected losses to be incurred by a creditor.|
|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.|
|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.|
|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.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|Rated Securities||Debt securities that have been accorded a credit rating.|
|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.|
|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.|
|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.|
|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.|
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 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 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 July 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, 29 February 2016, 30 May 2016 and 29 August 2016.
The ratings above were solicited by the Issuer and Arranger of the Transaction; GCR has been compensated for the provision of the ratings.