Johannesburg, 4 May 2018 — 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”):
R8.2m, Class A3, stock code TORQ3, interest at 3M Jibar + 2.09%, due 15 April 2022: .…………………….……. ‘AAA(ZA)(sf)’, Outlook Stable.
R10.2m, Class A4, stock code TORQ7, interest at 3M Jibar + 1.60%, due 15 August 2025: .…………………….. ‘AAA(ZA)(sf)’, Outlook Stable.
R9.7m, 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.
RATING RATIONALE
The Transaction’s performance depends on the ability of Iemas Financial Services (Co-operative) Limited (“Iemas” or the “Servicer”) to collect on the Instalment Sales Agreements in the security pool. Iemas’ rating of ‘BBB+(ZA)/A2(ZA)’ with a ‘Stable’ outlook was affirmed and withdrawn at the client’s request by GCR in April 2018. Nonetheless, GCR is comfortable that Iemas is capable of adequately fulfilling its role as Servicer in the securitisation.
At the Interest Payment Date (“IPD”) on 15 February 2018, an aggregate amount of R28.1m was outstanding on the Class A Notes, which translates to an aggregate 95.9% repayment on the principal amount of Class A Notes. The Issuer intends to repay the remaining Class A Notes on the next IPD (15 May 2018), as well as to redeem the Class B, Class C and Class D Notes that are currently outstanding.
The Transaction benefits from overcollateralisation provided by the subordination of Classes of Notes (including the R70m Class D Note), a subordinated loan of R11m and excess spread derived from the Participating Assets. GCR noted that the excess spread increased from R14.9m as at July 2017 to R21.3m at 31 January 2018. The Transaction also benefits from the establishment of a Reserve Fund and an Arrears Reserve Fund, which had balances of R11.0m and R2.2m at the 15 February 2018 IPD, respectively. The natural amortisation of the Class A Notes also provides additional credit enhancement to the structure.
Total cumulative defaults increased at a curtailed pace and amounted to R122.4m at 31 January 2018 (July 2017: R113.7m), noting that a significant portion of the default occurred between April 2016 and January 2017, owing to retrenchments at a number of key industries where Torque had an exposure. Cumulative recoveries increased relatively faster than cumulative defaults through the latter part of FY17, taking note that it normally takes 8-12 months to realise recoveries. GCR will continue to closely monitor the levels of Defaulted Participating Assets and recoveries during the amortisation period. 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. For more information, please read the Torque Securitisation (RF) Limited – Surveillance Report published on 4 May 2018.
RATINGS HISTORY
ANALYTICAL CONTACTS
| Primary Analyst | Secondary Analyst |
| Mark Vrdoljak | Tinashe Mujuru |
| Senior Structured Finance Analyst | Structured Finance Analyst |
| +27 11 784 1771 | +27 11 784 1771 |
| markvrd@globalratings.net | tinashem@globalratings.net |
Committee Chairperson
Yohan Assous
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 – Nov’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. |
| 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. |
For a detailed glossary of terms utilised please click here.
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 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 February 2018.
- Portfolio amortisation up until end of March 2018.
- Pool cut data per 15 March 2018.