Structured Finance

South African Securitisation Programme (RF) Limited Series 1 – Ratings Affirmed

Global Credit Ratings

Johannesburg, 12 January 2017 — Global Credit Ratings (‘GCR’) has affirmed the final, public long-term credit ratings accorded to the following securities issued by the South African Securitisation Programme (RF) Limited Series 1 (the “Issuer” or “SASP Series 1”):

R189.0m, Class A15, stock code ERSA15, interest at 3M JIBAR + 1.50%, due 17 August 2017: .…………………. ‘AAA(ZA)(sf)’, Outlook Stable.

R182.0m, Class A17, stock code ERSA17, interest at 3M JIBAR + 1.39%, due 17 August 2018: ..………………… ‘AAA(ZA)(sf)’, Outlook Stable.

R200.0m, Class A18, stock code ERSA18, interest at 3M JIBAR + 1.15%, due 17 August 2017: ..…………….….. ‘AAA(ZA)(sf)’, Outlook Stable.

R177.0m, Class A20, stock code ERSA20, interest at 3M JIBAR + 1.50%, due 17 August 2018: ..………………… ‘AAA(ZA)(sf)’, Outlook Stable.

R155.0m, Class A21, stock code ERSA21, interest at 3M JIBAR + 1.84%, due 17 August 2020: ..………………… ‘AAA(ZA)(sf)’, Outlook Stable.

R178.0m, Class A22, stock code ERSA22, interest at 3M JIBAR + 1.75%, due 17 May 2019: ………………………. ‘AAA(ZA)(sf)’, Outlook Stable.

R230.0m, Class A23, stock code ERSA23, interest at 3M JIBAR + 1.75%, due 17 August 2019: ……….…………. ‘AAA(ZA)(sf)’, Outlook Stable.

R99.0m, Class B4, stock code ERS3B4, interest at 3M JIBAR + 1.85%, due 17 August 2019: ..……………….……..…. ‘A(ZA)(sf)’, Outlook Stable.

R16.0m, Class B5, stock code ERS3B5, interest at 3M JIBAR + 2.15%, due 17 May 2019: ………………….…….……… ‘A(ZA)(sf)’, Outlook Stable.

R35.0m, Class C4, stock code ERS3C4, interest at 3M JIBAR + 2.35%, due 17 August 2019: ..………….……….…. ‘BBB(ZA)(sf)’, Outlook Stable.

R6.0m, Class C5, stock code ERS3C5, interest at 3M JIBAR + 3.15%, due 17 May 2019: ……………..…….………….’BBB(ZA)(sf)’, Outlook Stable.

RATING RATIONALE

SASP Series 1 is a public securitisation of rental and lease financed assets originated by Sasfin Bank Limited through Sunlyn Rentals Proprietary Limited and other entities approved by Sasfin which include disclosed suppliers and super non-disclosed suppliers (“SNDs”). The programme allows the Issuer to issue individual tranches of notes in separate series; the liabilities and assets of each series will be completely segregated and the secured creditors of one series will not have recourse to the assets of any other series. SASP has issued notes under other series, SASP Series 2 and SASP Series 3, whose assets and liabilities are completely segregated from the assets of SASP Series 1 (the “Series 1 Assets”). The notes issued under SASP Series 2 and SASP Series 3 are also rated by GCR.

GCR reviewed the transaction over the period from 30 June 2016 to 31 October 2016. The portfolio performed satisfactorily and there was no breach in any Performance Tests and therefore no Amortisation Events during the review period. The Transaction Yield was reported at a robust 19.11%, thereby remaining above the covenant requirement of 15.50% (prime + 5%). The Transaction thus continued to benefit from excess spread, which was reported at R13.8m for October 2016 or an annualized 11.28% of the outstanding notes value.

GCR noted an uptick in the Net Default Test Event, which rose from 0.91% at end May 2016 to a review period average of 1.18% (albeit remaining below the 2.63% covenant). The uptick is attributed to an increase in the number of defaults over the review period, particularly in July 2016. These defaults relate to deals in the pool of leases that have been identified by SASP’s credit team as potential default deals and have been 100% provided for in the books of SASP Series 1. As they have been 100% provided for, they constitute defaulted deals. The Transaction over collateralisation percentage was however maintained above the requirement of 12.54% over the review period. For more information, please read the South African Securitisation Programme (RF) Limited Series 1 Surveillance Report published on 12 January 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.

RATINGS HISTORY

Stock code
Initial rating
Long-term rating
Rating outlook
ERSA15
17 December 2015
AAA(ZA)(sf)
Stable
ERSA17
17 December 2015
AAA(ZA)(sf)
Stable
ERSA18
17 December 2015
AAA(ZA)(sf)
Stable
ERSA20
17 December 2015
AAA(ZA)(sf)
Stable
ERSA21
17 December 2015
AAA(ZA)(sf)
Stable
ERSA22
29 April 2016
AAA(ZA)(sf)
Stable
ERSA23
18 August 2016
AAA(ZA)(sf)
Stable
ERS3B4
17 December 2015
A(ZA)(sf)
Stable
ERS3B5
29 April 2016
A(ZA)(sf)
Stable
ERS3C4
17 December 2015
BBB(ZA)(sf)
Stable
ERS3C5
29 April 2016
BBB(ZA)(sf)
Stable
Stock code
Last rating
Long-term rating
Rating outlook
ERSA15
18 August 2016
AAA(ZA)(sf)
Stable
ERSA17
18 August 2016
AAA(ZA)(sf)
Stable
ERSA18
18 August 2016
AAA(ZA)(sf)
Stable
ERSA20
18 August 2016
AAA(ZA)(sf)
Stable
ERSA21
18 August 2016
AAA(ZA)(sf)
Stable
ERSA22
18 August 2016
AAA(ZA)(sf)
Stable
ERSA23
18 August 2016
AAA(ZA)(sf)
Stable
ERS3B4
18 August 2016
A(ZA)(sf)
Stable
ERS3B5
18 August 2016
A(ZA)(sf)
Stable
ERS3C4
18 August 2016
BBB(ZA)(sf)
Stable
ERS3C5
18 August 2016
BBB(ZA)(sf)
Stable

ANALYTICAL CONTACTS

Corne Els

Senior Credit Analyst

+27 11 784 1771

cornee@globalratings.net

Bridget Masendeke

Junior Analyst

+27 11 784 1771

bridgetm@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Structured Finance Rating Criteria – Feb ’16;

Global Consumer Asset Backed Securitisation Rating Criteria – May ’16

SASP Series 1 Surveillance Report – Jun ’16;

SASP Series 1 New Issuance Report – Aug ’16; and

Sasfin Bank Limited Financial Institution Report – May ’16.

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

Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
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).
Arranger Usually 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.
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.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).
Creditor A credit provider that is owed debt obligations by a debtor.
Debt An obligation to repay a sum of money.
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.
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.
Junior A security that has a lower repayment priority than senior securities.
Lease Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
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.
Loss A tangible or intangible, financial or non-financial loss of economic value.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Provision An amount set aside for expected losses to be incurred by a creditor.
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).
Recourse A source of help in a difficult situation.
Rent Payment from a lessee to the lessor for the temporary use of an asset.
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.
Secured Creditor A creditor that has specific assets pledged as collateral that will receive the proceeds in the event of default.
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.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Senior A security that has a higher repayment priority than junior securities.
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.
Stock Code A unique code allocated to a publicly listed security.
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.
Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
Tranche In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.
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; b.) the ratings were based solely on the merits of the rated entity, securities or financial instruments being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, securities or financial instruments; 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 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 Arranger and other reliable third parties to accord the credit ratings included the latest Issuer’s audited annual financial statements for the year ending June 2016; portfolio performance data relating to the underlying equipment lease portfolio covering the period June 2002 – October 2016; an overview of the Issuer’s lease portfolio as per 31 October 2016 and monthly management reporting packs.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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