Fox Street 6 (RF) Limited – Final Ratings Accorded

08 Aug 2018 In Rating Notifications

Fox Street 6 (RF) Limited – Final Ratings Accorded

Johannesburg, 8 August 2018—Global Credit Ratings (“GCR”) has accorded final, public long-term credit ratings to the following securities issued by Fox Street 6 (RF) Limited (the “Issuer”) on 8 August 2018:

R200m, Class A1 Notes, stock code FS6A1.…………................... AAA(ZA)(sf), Outlook Stable.

R400m, Class A2 Notes, stock code FS6A2.………………….…....... AAA(ZA)(sf), Outlook Stable.

R400m, Class A3 Notes, stock code FS6A3.………………….…....... AAA(ZA)(sf), Outlook Stable.

R150m, Class B1 Notes, stock code FS6B1.…………..................... AA(ZA)(sf),  Outlook Stable.

R50m,  Class C1 Notes, stock code FS6C1U.…………................. A+(ZA)(sf),  Outlook Stable.

R35m,  Class D1 Notes, stock code FS6D1U.…………................ BBB(ZA)(sf),  Outlook Stable.

The Issuer also issued R100m of unrated Class E1 Notes and was granted a Subordinated Loan for an amount of R20m by Investec Bank Limited. Neither the Class E1 Notes nor the Subordinated Loan are rated.

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

 

RATING RATIONALE

Fox Street 6 (RF) Limited is a Residential Mortgage Backed Securities (“RMBS”) securitisation of home loans originated by Investec Bank Limited (“Investec”) to its private banking clients. Investec has previously executed other RMBS transactions, which are rated by GCR.

Investec’s total home loan book has a relatively high prepayment rate. As at 30 April 2018, GCR observed an annualised prepayment rate for the total home loan book of 23.04%, and a 17.18% net repayment rate (contractual repayments plus prepayments less redraws, re-advances and further advances), both since January 2009.

The Issuer used the proceeds from the issuance of the Notes to purchase an initial portfolio of home loans and related security (the “Participating Assets”) from Investec. GCR was provided with the final pool of Participating Assets, which satisfy the Eligibility Criteria set out in the Transaction Documents and had an aggregate principal amount outstanding of R1.3bn on the issuance date of the Notes. The Seller may repurchase or substitute some Participating Assets, subject to the required conditions being satisfied, in accordance with the Transaction Documents.

As at 30 June 2018, the securitised home loan portfolio had a weighted average current Loan-To-Value (“LTV”) ratio of 70.6% and a weighted average Debt-to-Income (“DTI”) ratio of 20.3%.

The weighted average Original Loan-to Value (“OLTV”) ratio for the Fox Street 6 (RF) Limited portfolio for was calculated as 75.19%, which is lower than that of previous Fox Street structures, with the exception of Fox Street 2 (RF) Limited. At respective initiation of GCR’s ratings, the weighted average OLTV was 76.36% for Fox Street 1 (RF) Limited; 72.04% for Fox Street 2 (RF) Limited; 79.11% for Fox Street 3 (RF) Limited; 81.00% for Fox Street 4 (RF) Limited and 79.92% for Fox Street 5 (RF) Limited.

The Transaction operates two separate pre-enforcement Priorities of Payments – one that applies to interest receipts on home loans and payments of interest and expenses on the Notes; and one that applies to principal receipts on the home loans and principal payments on the Notes. For more information related to the Transaction, please refer to the Fox Street 6 (RF) Limited – New Issuance Report, to be published on 8 August 2018.

 

RATINGS HISTORY

Security Class
Stock Code
Initial/New rating
Long term rating
Rating outlook
Class A1
FS6A1
8 August 2018
AAA(ZA)(sf)
Stable
Class A2
FS6A2
8 August 2018
AAA(ZA)(sf)
Stable
Class A3
FS6A3
8 August 2018
AAA(ZA)(sf)
Stable
Class B1
FS6B1
8 August 2018
AA(ZA)(sf)
Stable
Class C1
FS6C1U
8 August 2018
A+(ZA)(sf)
Stable
Class D1
FS6D1U
8 August 2018
BBB(ZA)(sf)
Stable

 

ANALYTICAL CONTACTS

Primary Analyst Secondary Analyst
Tinashe Mujuru Yehuda Markovitz
Structured Finance Analyst Structured Finance Analyst
+27 11 784 1771 +27 11 784 1771
.(JavaScript must be enabled to view this email address) .(JavaScript must be enabled to view this email address)

Committee Chairperson

Yohan Assous

Sector Head: Structured Finance Ratings

+27 11 784 1771

.(JavaScript must be enabled to view this email address)

 

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

 

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.
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.
Cash Flow A financial term for monetary changes in operations, investing and financing activities.
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 X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Default 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).
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.
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.
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.
Obligor The party indebted or the person making repayments for its borrowings.
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.
Rated Securities Debt securities that have been accorded a credit rating.
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).
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
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.
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.
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.
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, 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 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 Issuer and the Arranger with no contestation of the ratings.

The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

The information received from the Arranger (Investec) and other reliable third parties to accord the credit ratings included:

  • Account Bank Agreement;
  • Administration Agreement;
  • Cession in Securitatem Debiti (Participating Assets);
  • Cession in Securitatem Debiti (Rights and Interests);
  • Cession and Pledge;
  • Common Terms Agreement;
  • Deed of Suretyship;
  • Guaranteed Investment Contract;
  • Guarantee Custody Certificate;
  • Guarantee Issued by the Security SPV in favour of the Secured Creditors;
  • Indemnity between the Issuer and the Security SPV;
  • Swap documentation;
  • Preference Share Subscription Agreement;
  • Pre-Issue Sale Agreement with closing list of assets;
  • Programme Memorandum;
  • Sale Agreement;
  • Servicing Agreement;
  • Subordinated Loan Agreement;
  • Issuer Owner Trust Deed;
  • Security SPV Owner Trust Deed;
  • Issuer Memorandum of Incorporation;
  • Security SPV Memorandum of Incorporation;
  • Warehouse Facility Agreement;
  • Settlement Agreement;
  • Subscription Agreement;
  • the Applicable Pricing Supplements
  • Pool cut of Participating Assets as at cut-off date 31 May 2018 and 30 June 2018; and
  • Historical prepayments data.

 

 

 

 

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