Johannesburg, 26 November 2018 — Global Credit Ratings (“GCR”) has accorded the following indicative, public long-term credit ratings to the following Notes (the “Notes”) to be issued by TUHF Urban Finance (RF) Limited (“the Issuer”), under its R2bn Mortgage Loan-Backed Securitisation Scheme:
- R385m, Class A Notes, Stock Code TBA, AA-(ZA)(sf), Stable outlook and
- R45m, Class B Notes, Stock Code TBA, BBB-(ZA)(sf), Stable outlook.
The Issuer will issue Class D Notes of R20m and Class E Notes of R50m that will be unrated and act as credit enhancement for the rated Notes. The Class E Notes will be held by the Seller/Servicer, TUHF Ltd (“TUHF”).
The indicative, public credit ratings accorded to the Class A Notes relate to timely payment of interest and ultimate payment of principal by their Final Redemption Date, 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.
The Mortgage Loans are originated by TUHF, which operates as a non-bank financial services provider. TUHF Urban Finance (RF) Ltd is a first-time issuer, and has a R2bn Mortgage Loan Backed Securitisation Scheme.
The Transaction allows for a time-limited Revolving Period which could be ended early should an Excess Spread or Cumulative Non-Performing Loan (“NPL”) trigger be breached. The Issuer may pre-fund (up to 10% of the Notes) on issuance, which proceeds would be used to purchase assets by the end of the Revolving Period. Given the timeframe allowed under the Transaction documents, negative carry could be incurred should the funds not be utilised by the end of the Revolving Period.
The proceeds from the Issuance will be used to purchase End User Loan Claims (“Mortgage Loans”) used to finance commercial property for entrepreneurs in the inner cities of South Africa. It must be noted that the earmarked portfolio has some obligor and geographic concentrations. The acquisition of assets has to comply with eligibility criteria and portfolio covenants which mitigate the risk of a significant change in the composition of the asset portfolio during the Revolving Period.
To assess the Transaction, GCR used a hybrid approach, combining elements of both its Global Consumer Asset-Backed Securitisation (“ABS”) Rating Criteria and its Global Residential Mortgage Backed Securities (“RMBS”) Rating Criteria. GCR noted the significant seasoning of the asset portfolio which should be maintained with adherence to the portfolio covenants. GCR calculated an adjusted base case default rate of 13.55% which was based on historical defaults incurred by the Originator. The base case default rate (13.55%) is a percentage of the Mortgage Loans’ outstanding balance at Transaction close. This equates to 11.48% of the Mortgage Loans’ balance at origination. GCR also calculated an adjusted base case recovery rate of 79.94% which was based on the latest property values in the portfolio.
The Transaction credit enhancement is provided via excess spread and via the subordination of Notes. GCR estimated an expected excess spread of 1.17% at closing by subtracting the expected weighted average margin on the Notes, plus expected senior expenses stressed by a factor of 10%, from the existing weighted average margin on the assets (the Mortgage Loans), at currently prevailing Prime and 3M-JIBAR interest rates.
The Transaction operates two Priorities of Payments in a Pre-enforcement scenario. Until an Excess Spread or Cumulative Non-Performing Loan (“NPL”) Trigger is breached, the Notes are amortised on a pari passu and pro rata basis. The breach of one of these triggers would cause the Notes to amortise sequentially.
A Class E Payment Lock-out Event would force the payments under the Class E Notes to be fully subordinated to the payments of the other Notes.
|Primary Analyst||Secondary Analyst|
|Corné Els||Yehuda Markovitz|
|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 – Sep ’18
- Global Consumer Asset-Backed Securitisation Rating Criteria – Sep ’18
- Global Residential Mortgage Backed Securities (RMBS) Rating Criteria – May ’17
- Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17
- Trust for Urban Housing Finance (Pty) Ltd Rating Report – Oct ’18
- Standard Bank of South Africa Ltd Rating Report – May ’18.
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.
|Asset||An item with economic value that an entity owns or controls.|
|Claim||A formal request or demand.|
|Concentrations||A high degree of positive correlation between factors or excessive exposure to a single factor that share similar demographics or financial instrument or specific sector or specific industry or specific markets.|
|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 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.|
|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 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Eligibility Criteria||Limitations imposed on the type and quality of assets that can be sold by the Originator / Servicer into the Securitisation vehicle which ensure the transaction will track the performance of historical data analysed as closely as possible.|
|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.|
|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.|
|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.|
|Obligor||The party indebted or the person making repayments for its borrowings.|
|Originator||An entity that created assets and hold on balance sheet for securitisation purposes.|
|Pari Passu||Side by side; at the same rate or on an equal footing. Securities issued with a pari passu clause have rights and privileges that are equivalent to those of existing securities of the same class.|
|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.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|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.|
|Seasoning||The age of an asset, the time period passed since origination.|
|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.|
|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.|
|Subordination||The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches.|
|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 in this document please click here.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings were 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 ratings document.
The Arranger and TUHF 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 Arranger.
The information received from the Arranger and other reliable third parties to accord the credit ratings included:
- Draft Transaction Documents:
- Programme Memorandum
- Servicing Agreement
- Security Cession
- Sale of Claims
- Preference Share Subscription Agreement
- Pledge and Cession
- Issuer Indemnity
- Deed of Suretyship
- Common Terms Agreement
- Administration Agreement
- Static Default and Recovery Data
- A pool cut at 30 September 2018
- Senior Expense Schedule
- Pool Audit Report
- Draft Taxation and Legal Opinions
The ratings above were solicited by, or on behalf of the rated entity, and therefore, GCR has been compensated for the provision of the ratings.