Johannesburg, 29 April 2016 — Global Credit Ratings (‘GCR’) has accorded final, public long term credit ratings to the following Notes issued by the Torque Securitisation (RF) Limited:
R200.0m, Class A3, stock code TORQ3, interest at 3M Jibar + 1.59%, due 15 August 2017: .……………….……. ‘AAA(ZA)(sf)’, Outlook Stable.
R250.0m, Class A4, stock code TORQ7, interest at 3M Jibar + 1.60%, due 15 August 2019: .…………………….. ‘AAA(ZA)(sf)’, Outlook Stable.
R238.0m, Class A5, stock code TORQ8, interest at 3M Jibar + 1.80%, due 17 August 2018: .…………………….. ‘AAA(ZA)(sf)’, Outlook Stable.
R84.0m, Class B2, stock code TORQ9, interest at 3M Jibar + 2.10%, due 15 August 2018: ..………………………… ‘A+(ZA)(sf)’, Outlook Stable.
R49.0m, Class C2, stock code TORQ10, interest at 3M Jibar + 3.00%, due 15 August 2018: ..………………….…. ‘BBB(ZA)(sf)’, Outlook Stable.
RATING RATIONALE
Iemas, along with its subsidiaries, is focused on providing a wide range of financial and insurance products to its members, including employees from more than 600 South African employers across several industries. Their product range includes vehicle financing, secured and unsecured loans as well as short-term insurance and financial advisory services. Torque, more specifically, is a public securitisation of instalment sales agreements originated by Iemas.
The proceeds of the note issuance have been used to fund the Torque portfolio of instalment sales agreements and the associated vehicles (the “Participating Assets”). The Issuer has drawn R11m in the form of a Subordinated Loan. The cash reserve equivalent to 1% of the portfolio is partly funded by the subordinated loan and excess spread, equating to 3% of the Participating Assets balance. The Transaction also benefits from an Arrears Reserve, which at 15 August 2015 issuance equated to R2.9m. However, given the decision to enter Early Amortisation, the arrears reserve will used to repay the outstanding notes over the course of the Amortisation in accordance to the Post Enforcement Priority of Payments.
GCR reviewed the performance of Instalment Sales Agreements originated by Iemas for the period from March 2008 to December 2015 and determined default and recovery base cases in line with GCR’s Global Consumer Asset Back Securties Criteria. GCR was also provided with the latest Instalment Sales Agreement Pool cut as at 31 December 2015, encompassing the Instalment Sales Agreements funded by the issuance of the Notes. GCR then determined the appropriate stress levels for each rating band and tested the credit enhancement provided to each tranche of the Notes for the respective rating levels. GCR relied on a cash flow model to determine if the cash flow from the securitised portfolio would be sufficient to service the Transaction at all the relevant rating levels in a Post Enforcement Scenario. For more information, please read the Torque Securitisation (RF) Limited – New Ratings Report to be published on 29 April 2016.
The final, public credit ratings accorded to the ‘Class A Notes’ relate to timely payment of interest and ultimate payment of principal, whilst the ratings on all other securities relate to ultimate payment of interest and ultimate payment 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.
RATINGS HISTORY
ANALYTICAL CONTACTS
Primary Analyst
Mark Vrdoljak
Credit Analyst
+27 11 784 1771
Committee Chairperson
Emma-Jane Fulcher
Sector Head: Structured Finance Ratings
+27 11 784 1771.
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria, updated February 2016; and
Global Consumer Asset Backed Securitisation Rating Criteria – Apr ’15.
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 REPORT
| Amortisation | The gradual reduction of an obligation over time as the net result of repayments, interest and fees. |
| Arrears Reserve | An accounting provision made in a reserve fund for arrears. |
| Cash Flow | A financial term for monetary changes in operations, investing and financing 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. |
| Credit Rating | A rating accorded to the performance of either ultimate or timely payment of obligations. |
| Credit Rating Agency | A party that provides an opinion on the credit quality of assets, debt securities and companies. |
| Credit Risk | The probability or likelihood that a borrower will not meet it’s debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred). |
| 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. |
| JIBAR | Johannesburg Interbank Agreed Rate. A reference rate. |
| Legal Opinion | An opinion regarding the validity and enforceable of a transaction’s legal documents. |
| 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. |
| Liquidity Risk | The risk that a financial instrument cannot be traded on it’s market price due to the size of the market. |
| Long Term Rating | A credit rating based on the opinion of the ability to repay long term (more than a year) obligations. |
| Over-collateralisation | Principal balance of loans exceeds the principal balance of the debt securities issued by the securitisation vehicle. Or, the value of the assets is in excess of the debt securities issued by the securitisation vehicle. Or, more assets are given for the debt securities issued by the securitisation vehicle. A form of credit enhancement. |
| Priority of Payments | In securitisation, the order in which the cash flows are allocated to the transaction parties. |
| Property | Movable or immovable asset. |
| Rating Outlook | A Rating Outlook indicates the potential direction of a rating over the medium term, typically a one to two years period. 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). |
| Reference Rate | A rate that is the basis of the calculation such as JIBAR. |
| Reserve Fund | A funded account available for use by a Special Purpose Vehicle for one or more specified purposes. A reserve fund is often used as a form of credit enhancement. Typically accumulated over time, through excess cash flows. |
| Securitisation Vehicle | See Special Purpose Vehicle. |
| Security Package | Security offered to Noteholders for debt securities issued that should increase the recoveries in an event of default. |
| Special Purpose Vehicle | A Special Purpose Vehicle that has been created to guarantee the performance of the obligations of the Issuer that sold its assets to the Guarantee SPV. |
| 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. |
| Subordination | The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches. |
| 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. |
| Weighted Average | An average resulting from the multiplication of each component by a factor reflecting it’s importance or, relative size to a pool of assets or liabilities. |
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 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 Orginator 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 rating/s above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.
The information received from the Orginator and other reliable third parties to accord the credit ratings included the portfolio performance data relating to the underlying Instalment Sales Agreement portfolio covering the period March 2008 – December 2015; an overview of the available Instalment Sales Agreement portfolio that was acquired by the Issuer (revolving basis, noting the Issuer’s intention to enter an early amortisation); the Seller’s audited financial statements for the year ending 31 August 2015; and the Issuer’s audited annual financial statements for the year ending 31 June 2015. GCR received final signed and executed Transaction documents and the final signed transaction legal opinions prepared by South African transaction legal counsel, Edward Nathan Sonnenbergs.