Rating Alerts Structured Finance

GCR affirms the ratings accorded to the Notes issued by Nitro Securitisation 6 (RF) Limited

Johannesburg, 13 May 2019 – GCR Ratings (“GCR”) has affirmed the final, public long-term credit ratings and rating outlooks accorded to the following securities issued by Nitro Securitisation 6 (RF) Limited (“Nitro 6” or the “Issuer”) in April 2018:

R516.8m Class B Notes, stock code N6B26: ‘AAA(ZA)(sf)’ with a Stable outlook;

R500.0m Class C Notes, stock code N6C26: ‘AAA(ZA)(sf)’ with a Stable outlook;

R200.0m Class D Notes, stock code N6D26: ‘AA-(ZA)(sf)’ with a Stable outlook;

R65.0m Class E Notes, stock code N6E26: ‘BBB+(ZA)(sf)’ with a Stable outlook;

R55.0m Class F Notes, stock code N6F26: ‘BB+(ZA)(sf)’ with a Stable outlook.

Nitro 6 is a public securitisation of Instalment Sale Agreements (“ISAs”) originated by WesBank and subsequently sold to the Issuer. The underlying assets to the ISAs comprise largely of passenger vehicles. The Class A Notes issued by the Issuer reached their maturity and were fully repaid in March 2019 – the rating of these Notes was previously withdrawn (see the rating announcement dated 20 March 2019). The Issuer also issued Class G Notes that are not rated.

The final public ratings accorded to the Class B and Class C Notes relate to timely payment of interest and ultimate payment of principal by the Final Maturity Date of the Notes, while the ratings accorded to all other securities relates to ultimate payment of interest and principal by the Final Maturity Dates of those Notes. The ratings exclude an assessment of the ability by the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

SUMMARY RATING RATIONALE

GCR Ratings has affirmed the above credit ratings to the Nitro 6 Notes based on the following key factors:

GCR updated its Global Master Structured Finance Rating Criteria, as well as its Global Consumer Asset-Backed Securitisations (“ABS”) Rating Criteria and published a research report on its ABS Cash Flow Model in September 2018. The updates to the criteria also included the introduction of country specific stresses to improve the comparability of international scale ratings. The Nitro 6 ratings were reviewed in light of the updated rating criteria.

GCR received updated historical default and recovery data. Defaults exhibited performance that have moderately improved compared to the extrapolated averages established when the ratings were initially accorded. GCR opted to maintain the initial default base case in its cash flow model, with an adjustment made to the base case to account for loans in arrears (assumed to have a 25% higher likelihood to default) at 28 February 2019. Defaults that had already occurred at the latest reporting date were also incorporated in the first month of the cash flow model. A lower base case recovery rate was calculated considering the updated historical data received.

Nearly a third of the initial aggregate balance of the assets has been repaid to date. The principal receipts from the assets were utilised to fully repay the Class A Notes, as well as to partially redeem the Class B Notes as per the Pre-enforcement Priority of Payments. GCR noted a negative excess spread amount of c.R750k reported for the quarter ending March 2019, due to a lumpy tax payment. However, it was absorbed by a positive cumulative excess spread of R25m as at February 2019. The cash reserve has been funded at its required amount throughout the period under review (May 2018 to February 2019).

GCR noted that there are some discrepancies in the provisions of the transaction documents relative to the thresholds stipulated in the updated Global Master Structured Finance Rating Criteria. In order to mitigate the potential risks brought about by these deviations in the transaction documents, GCR adjusted its cash flow model and where necessary, applied qualitative adjustments as detailed further in the Surveillance Report published in May 2019.

NATIONAL SCALE RATINGS HISTORY   
      
Class BClass CClass DClass EClass F
Initial/Last rating: April 2018April 2018April 2018April 2018April 2018
Long Term Rating: AAA(ZA)(sf)AAA(ZA)(sf)AA-(ZA)(sf)BBB+(ZA)(sf)BB+(ZA)(sf)
Outlook: StableStableStableStableStable

ANALYTICAL CONTACTS

Primary Analyst
Tinashe Mujuru
Structured Finance Analyst
(011) 784-1771
tinashem@GCRratings.com
 
Secondary Analyst
Charlene Chipoyera
Structured Finance Analyst
(011) 784-1771
charlenec@GCRratings.com
 
Committee Chairperson
Yohan Assous
Sector Head: Structured Finance Ratings
(011) 784-1771
yohan@GCRratings.com

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

  • Global Master Structured Finance Rating Criteria (Sep’18);
  • Global Consumer Asset-Backed Securitisation Rating Criteria (Sep’18);
  • Nitro 6 New Issuance Ratings Report (Apr’18);
  • Global Master Criteria for Rating Banks and other Financial Institutions (Mar’17); and
  • FirstRand Rating Report (Dec’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 AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. 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.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings are 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 Arranger participated in the rating process via face-to-face management 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 Issuer.

The information received from the Arranger and other reliable third parties to accord the credit rating included:

  • Pool Cut for the Portfolio at February 2019;
  • Static Cumulative default and recovery data up to quarter ending December 2018;
  • Historic Prepayments up to December 2018;
  • Senior Expenses information;
  • Quarterly Investor Reports from June 2018 up to March 2019.

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.

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

AgreementA negotiated and usually legally enforceable understanding between two or more legally competent parties.
ArrangerUsually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
ArrearsGeneral term for non-performing obligations, i.e. obligations that are overdue.
AssetAn item with economic value that an entity owns or controls.
Cash FlowA financial term for monetary changes in operations, investing and financing activities.
CreditA 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 RatingAn 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.
DefaultA 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.
EnforcementTo make sure people do what is required by a law or rule et cetera.
Excess SpreadThe net weighted average interest rate receivable on a pool of assets being greater than the weighted average interest rate payable for the debt securities.
InstalmentPayment 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.
IssuerThe party indebted or the person making repayments for its borrowings.
LoanA 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 RatingA 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.
PrincipalThe total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
ProvisionAn amount set aside for expected losses to be incurred by a creditor.
Rating OutlookA 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).
RecoveryThe action or process of regaining possession or control of something lost. To recoup losses.
RepaymentPayment 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.
SecuritiesVarious instruments used in the capital market to raise funds.
SecuritisationIs a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
Short-Term RatingA 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.
SpreadThe interest rate that is paid in addition to the reference rate for debt securities.
Stock CodeA unique code allocated to a publicly listed security.
Structured FinanceA method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.
SurveillanceProcess of monitoring a transaction according to triggers, covenants and key performance indicators.
Timely PaymentThe principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
TransactionA 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 PaymentA measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
Under ReviewFailure to carry out a full review of a rated entity within the designated timeframe, either through lack of information or delays in finalisation, i.e. review is ongoing.

For a detailed glossary of terms please click here



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