Johannesburg, 6 November 2017 — Global Credit Ratings (“GCR”) has affirmed the final, public long-term credit ratings and outlooks accorded to the following Notes issued by Torque Securitisation (RF) Limited (the “Issuer” or “Torque”):
R50.7m, Class A3, stock code TORQ3, interest at 3M Jibar + 2.09%, due 15 April 2022: .……………….……. ‘AAA(ZA)(sf)’, Outlook Stable.
R63.4m, Class A4, stock code TORQ7, interest at 3M Jibar + 1.60%, due 15 August 2025: .…………………….. ‘AAA(ZA)(sf)’, Outlook Stable.
R60.3m, Class A5, stock code TORQ8, interest at 3M Jibar + 1.80%, due 15 August 2026: .…………………….. ‘AAA(ZA)(sf)’, Outlook Stable.
R84.0m, Class B2, stock code TORQ9, interest at 3M Jibar + 2.10%, due 15 August 2026: ..………………………… ‘A+(ZA)(sf)’, Outlook Stable.
R49.0m, Class C2, stock code TORQ10, interest at 3M Jibar + 3.00%, due 15 August 2026: ..………………….…. ‘BBB(ZA)(sf)’, Outlook Stable.
The Transaction’s performance depends on the ability of Iemas, the Servicer to collect on the Instalment Sales Agreements. Iemas was downgraded to ‘BBB+(ZA)/A2(ZA)’ on the long-term and short-term national scale respectively, with a ‘Negative’ outlook by GCR in April 2017. The negative rating action on Iemas reflects its weaker operating performance, decreased business scale, and the increasingly challenging economic climate and consequent weakening credit environment. However, GCR is comfortable that Iemas is capable of adequately fulfilling its role as Servicer in the securitisation. A Servicer review was conducted by GCR in April 2017.
The proceeds of the note issuance were used to fund the Torque portfolio of Instalment Sales Agreements and the associated vehicles (the “Participating Assets”). The Transaction entered Early Amortisation (from May 2016) and no additional purchases of Further Participating Assets are allowed. Collections received on the Participating Assets are used to repay interest and principal on the Notes at each quarterly Interest Payment Date in accordance with the relevant Priority of Payments waterfall since the first Interest Payment Date following the Early Amortisation notice.
At 31 July 2017 an aggregate amount of R513.6m was repaid on the Class A Notes, representing a 74.7% repayment on the aggregate principal amount outstanding on the Class A Notes. However, the Class A3 Notes were not redeemed on their Scheduled Maturity Date of 15 August 2017 and as such, the step-up margin of 0.5% became applicable to the Notes since the Scheduled Maturity Date. Given that GCR already incorporated such step-up margin in its assumptions when assigning the ratings to the Notes, no rating action is deemed necessary by the rating agency. However, GCR anticipates the step-up margin to negatively affect the excess spread generated in the structure.
Total cumulative defaults have increased significantly, particularly during FY16, following a series of retrenchments in key industry sectors where Torque has exposure. At 31 July 2017 cumulative defaults amounted to 13.2% of the initial portfolio, with cumulative recoveries at 53.0% of total defaults, having shown some improvement in April 2017. GCR notes that arrears have been kept stable, albeit the number of private employees financed has risen to 16.8% from 12.4% at the start of the voluntary amortisation. GCR will continue to closely monitor this movement as it may potentially impact the Servicer’s ability to collect via payroll deduction.
GCR notes that the sequential amortisation of the Notes mechanically increases the amount of credit enhancement in the structure. In addition, Torque purchased assets using available excess spread in May 2016, which further increased the levels of credit enhancement available. The build-up of excess spread, together with the subordination of Notes, the subordinated loan and the overcollateralisation of Participating Assets is sufficient to offset the impact of rising defaults in the structure. For more information, please read the Torque Securitisation (RF) Limited – Surveillance Report to be published in November 2017.
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.
Primary Analyst Secondary Analyst
Mark Vrdoljak Tinashe Mujuru
Senior Structured Finance Analyst Structured Finance Analyst
+27 11 784 1771 +27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Feb’17;
Global Consumer Asset Backed Securitisation Rating Criteria – May’17;
Torque Securitisation (RF) Limited New Issuance Report – Apr’16;
Torque Securitisation (RF) Limited Surveillance Report – Apr’17; and
IEMAS Financial Services Report – Apr’17.
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.|
|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.|
|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.|
|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 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||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.|
|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.|
|Enforcement||To make sure people do what is required by a law or rule et cetera.|
|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.|
|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.|
|Insurance||Provides protection against a possible eventuality.|
|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.|
|Payment Date||The date on which the payment of a coupon is made.|
|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.|
|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).|
|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.|
|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.|
|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.|
|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.|
|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.|
|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 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 Originator 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 ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The credit ratings have been disclosed to the Issuer and the Arranger with no contestation of the ratings.
The information received from the Servicer and other reliable third parties to accord the credit ratings included:
- Quarterly investor reports up until August 2017.
- Portfolio amortisation up until end August 2017.
- Pool cut data per 31 July 2017 and 31 August 2017.