Announcements Rating Alerts Structured Finance

Vineyard Road Investments (RF) Ltd – Vineyard Series Transaction 1, Rating Affirmed

Johannesburg, 12 March 2019 — Global Credit Ratings (“GCR”) has affirmed the final, public short-term credit rating of ‘A1+(ZA) (sf) ‘ of the Class A Notes issued by Vineyard Road Investments (RF) Ltd (“Transaction”) under the Vineyard Road Series Transition 1.

The final, public rating accorded to the Class A Notes relates to timely payment of interest and principal. The Issuer may also issue Class B Notes that are unrated. The rating is derived and dependant on the short-term credit ratings of the Participating Assets.

The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties.

GCR Methodology update

In September 2018, GCR updated its Global Master Structured Finance Rating Criteria and in November 2018, GCR updated its Global Credit-Linked Note and Repackaging Vehicle Rating Criteria (“Criteria”). Both Criteria are deemed applicable to this Transactions. GCR noted no deviations from the Criteria.

RATING RATIONALE

Vineyard Road Investments (RF) Ltd, under Vineyard Series Transaction 1 (“VST1”), is a serialised Programme that allows the issuance of Notes backed by segregated pools of assets.

The Issuer maintained the nominal amount of Notes outstanding at R3.19bn from June to December 2018.

The portfolio consists of highly-rated counterparts. However, in consideration of the risks associated with the inherently concentrated nature of the portfolio, GCR is likely to take rating action on the Class A Notes should the short-term national scale rating of any of the banks issuing the NCDs held by VST1 be downgraded to below ‘A1+(ZA)’.

Portfolio covenants require that no single bank’s Negotiable Certificates of Deposit (NCDs) may represent more than 50% of Participating Assets should the Maturity Amount of the Notes be less than or equal to R1bn. Should the Maturity Amount of the Notes be more than R1bn, then a single bank NCD exposure may not be more than 40% to one of either FirstRand Bank Ltd, Absa Bank Ltd, Nedbank Ltd and Standard Bank of South Africa Ltd and may not be more than 30% to Investec Bank Ltd; and the Series must hold NCDs issued by at least three of the following banks: FirstRand Bank Ltd, Absa Bank Ltd, Nedbank Ltd, Standard Bank of South Africa Ltd and Investec Bank Ltd.

All of the portfolio covenants were maintained during the review period (June to December 2018). All of the existing eligible banks referenced in the portfolio covenant maintained their short-term national scale credit ratings of ‘A1+(ZA)’.

The transaction relies on the liquidity facility provided by Liberty Group Ltd, as Liquidity Facility Provider, to address payment mismatches between VST1’s assets and liabilities. The Liquidity Facility Provider has a rating commensurate with the rating of the Class A Notes as per GCR’s Global Master Structured Finance Rating Criteria.

No Credit Event occurred that resulted in any Participating Asset becoming Non-Performing. Such an event would cause a mandatory conversion of the nominal value of the Class A Notes to Class B Notes of the same value at no consideration.

RATINGS HISTORY

Stock code
Initial rating
Short-term rating
Class A Notes
29 August 2017
A1+(ZA)(sf)
 
Stock code
Last rating
Short-term rating
Class A Notes
21 August 2018
A1+(ZA)(sf)

ANALYTICAL CONTACTS

Primary Analyst

Corné Els

Senior Structured Finance Analyst

+27 11 784 1771

corneE@globalratings.net

Committee Chairperson

Yohan Assous

Sector Head: Structured Finance Ratings

+27 11 784 1771

yohan@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Structured Finance Rating Criteria – Sep ’18;

Global Credit-Linked Note and Repackaging Vehicle Rating Criteria – Nov ’18;

Vineyard Road Investments (RF) Ltd – Vineyard Series Transaction 1 Surveillance Report – Aug ’18;

Criteria for Rating Banks and Other Financial Institutions – Mar ’17; and the Financial Institution ratings for: FirstRand Bank Ltd – Dec ’18, ABSA Bank Ltd – May ’18, Nedbank Ltd – May ’18, Standard Bank of South Africa Ltd – May ’18, and Investec Bank Ltd – Nov ’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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

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 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.
Downgrade The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
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.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
Liquidity Facility A facility provided to a structured finance transaction that will pay the Noteholders interest in the event that the underlying assets cash flows are inadequate.
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.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
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.
Repack Rearrangement of securities with the intent to be more attractive for investment. Junior tranches (that have a higher degree of default risk) of a securitisation transactions that have been repackaged into separate debt securities (according to their degree of risk) that utilise credit-enhancement techniques to mitigate the risk. A CDO is created to distribute the prepayment risk amongst different classes of Notes.
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.
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.
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.
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.
Account Bank A bank where the transaction account is held.
Administrator A transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance.
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 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.
Downgrade The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.
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.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
Hedge A form of insurance against financial loss or other adverse circumstances.
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.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
Liquidity Facility A facility provided to a structured finance transaction that will pay the Noteholders interest in the event that the underlying assets cash flows are inadequate.
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.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
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.
Repack Rearrangement of securities with the intent to be more attractive for investment. Junior tranches (that have a higher degree of default risk) of a securitisation transactions that have been repackaged into separate debt securities (according to their degree of risk) that utilise credit-enhancement techniques to mitigate the risk. A CDO is created to distribute the prepayment risk amongst different classes of Notes.
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.
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.
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.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
Tenor The term or duration of a debt security.
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 rating was influenced by any other business activities of the credit rating 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 ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit ratings document.

The Arranger 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 rating has been disclosed to the Arranger.

GCR has received the Investor Reports for 29 September 2017, 31 December 2017, 31 March 2018, 30 June 2018, 30 September 2018 and 31 December 2018.

The rating above was solicited by, or on behalf of the rated entity, and therefore, GCR has been compensated for the provision of the rating.



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