ZAR 1,670 Million of Debt Securities Affected
Johannesburg, November 26, 2010 -- Moody's Investors Service has today assigned definitive credit ratings
to the following classes of notes issued by Blue Granite Investments No.
1 (Pty) Ltd (Blue Granite 1):
Aa2 (sf) /Aaa.za (sf) to the ZAR560,000,000 Class A5
Secured Floating Rate Notes due November 2032; and
Aa2 (sf)/ Aaa.za (sf) to the ZAR 1,110,000,000
Class A6 Secured Floating Rate Notes due November 2032.
In addition, Moody's has taken the following credit ratings
on the existing classes of notes issued by Blue Granite No 1:
Aa2 (sf) /Aaa.za (sf) to the ZAR500,000,000 Class A4
Secured Floating Rate Notes due November 2032, previously Aa2 (sf)/Aaa.za
(sf) on the 20 July 2009;
Aa3 (sf) /Aa1.za (sf) to the ZAR102,000,000 Class B
Secured Floating Rate Notes due November 2032, previously Aa3 (sf)/Aa1.za
(sf) on the 3 August 2007;
A3 (sf) /Aa3.za (sf) to the ZAR247,500,000 Class C
Secured Floating Rate Notes due November 2032, previously A3 (sf)/Aa3.za
(sf) on the 3 August 2007;
Baa3 (sf) /A3.za (sf) to the ZAR67,500,000 Class D
Secured Floating Rate Notes due November 2032, previously Baa3 (sf)/A3.za
(sf) on the 3 August 2007; and
Ba2 (sf) /Baa2.za (sf) to the ZAR45,000,000 Class E
Secured Floating Rate Notes due November 2032, previously Ba2 (sf)/Baa2.za
(sf) on the 3 August 2007.
The transaction represents the first securitisation of South African residential
mortgage loans originated by The Standard Bank of South Africa ("SBSA")
(A1/P-1)). Blue Granite 1 was originally rated by Moody's
in October 2005. The assets (portfolio amount plus cash & redraw
reserves) supporting the notes, which amount to ZAR 2.650
billion, are prime mortgage loans secured on residential properties
located in the South Africa. SBSA as contractual servicer and administrator,
has sub-delegated it servicing and administration functions to
SA Home Loans (Pty) Ltd ("SAHL") (not rated).
The transaction includes four reserves: i) 2.75% amortising
cash reserve (1% floor), available for senior costs and note
interest shortfalls; ii) 2.25% amortising redraw reserve,
available to fund redraws, further advances and further loans (no
longer allowed); iii) 3.01% non-amortising arrears
reserve fund, available for liquidity shortfalls and losses;
and iv) R51 million amortising interest reserve, available to fund
the higher class A5 and A6 note margins. Only the arrears reserve
fund provides credit enhancement to the class A5, A6, A4,
B, C, D and E notes at the end of the transaction life.
The ratings of the notes takes into account the credit quality of the
underlying mortgage loan pool, from which Moody's determined the
MILAN Aaa Credit Enhancement and the portfolio expected loss, as
well as the transaction structure and any legal considerations as assessed
in Moody's cash flow analysis.
The expected portfolio loss of 2.65% and the MILAN Aaa required
Credit Enhancement of 12.0% served as input parameters for
Moody's cash flow model, which is based on a probabilistic lognormal
distribution as described in the report "The Lognormal Method Applied
to ABS Analysis", published in September 2000.
The key driver for the MILAN Aaa Credit Enhancement number is the fact
that currently 17.6% of the portfolio is in arrears (5.8%
of mortgage loans are greater than 90 days in arrears) and the structure
allows for mortgage loans where a borrowers has been approved for a further
loan to be replaced with a new mortgage loan subject to portfolio limits,
notably i) the weighted-average loan-to-value (LTV)
of 70% (currently 68.0%); and (ii) a weighted
average payment to income of 18.0% (currently 17.0%).
The MILAN Aaa CE is partially offset by the high weighted average seasoning
of the pool (65% of the pool is more than 5 years seasoned) and
the fact that 55% of borrowers have been fully paying for more
than 2 years.
Compared to other standard South African RMBS transactions, Blue
Granite 1 has a number of unique features namely: i) the initial
issuance of notes were used to fund 95% of mortgage loans and 5%
of cash reserves (2.75% cash reserve and 2.25%
redraw reserve); ii) a R51 million interest reserve, funded
by a subordinated class F note, to fund the expected increase in
note margins on the class A5 and A6 notes; iii) the revolving period
has stopped and the issuer currently can no longer fund new mortgage loans,
redraws, further advances and further loans; and iv) dynamic
non-amortising arrears reserve fund which can increase but never
The key drivers for the portfolio expected loss are (i) the historical
default and loss performance on Blue Granite 1 ii) performance of the
Blue Banner book; (iii) benchmarking with comparable transactions
in the South Africa RMBS market and iv) current economic environment in
South Africa. Given the historical performance of the transaction,
the South African RMBS market and the originator's book, Moody's
believes the assumed expected loss is appropriate for this transaction.
The EL is higher than other comparable South African RMBS transactions
mainly due to the current level of arrears of the portfolio of 17.6%
of the current balance of the portfolio.
The definitive ratings address the expected loss posed to investors by
the legal final maturity. In Moody's opinion the structure
allows for timely payment of interest and ultimate payment of principal
at par on or before the rated final legal maturity date. Moody's
ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
The V-Score for this transaction is Medium. The key driver
for this score is the fact that it is a standard South African RMBS structure
for which we have about 10 years of historical performance data.
The primary source of uncertainty surrounding our assumptions is the deteriorating
performance of precedent Blue Granite transactions and the fact that South
Africa is a relatively young securitisation market.
V-Scores are a relative assessment of the quality of available
credit information and of the degree of dependence on various assumptions
used in determining the rating. High variability in key assumptions
could expose a rating to more likelihood of rating changes. The
V-Score has been assigned accordingly to the report "V-Scores
and Parameter Sensitivities in the Major EMEA RMBS Sectors" published
in April 2009.
Moody's Parameter Sensitivities: If the portfolio expected loss
was increased from 2.65% of current balance to 8.0%
of current balance and the MILAN Aaa CE increased from 12.0%
to 19.2%, the model output indicates that the Class
A5 and A6 notes would have been Aa2/Aaa.za and Aa2/Aaa.za
respectively assuming that all other factors remain equal.
Moody's Parameter Sensitivities provide a quantitative/model-indicated
calculation of the number of rating notches that a Moody's structured
finance security may vary if certain input parameters used in the initial
rating process differed. The analysis assumes that the deal has
not aged and is not intended to measure how the rating of the security
might migrate over time, but rather how the initial rating of the
security might have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA RMBS transaction are calculated
by stressing key variable inputs in Moody's primary rating model.
The principal methodologies used in this rating were Moody's Approach
to Rating South African RMBS published in January 2005, and Cash
Flow Analysis in EMEA RMBS: Testing Features with the MARCO Model
(Moody's Analyser of Residential Cash Flows) published in January
Moody's National Scale Ratings (NSRs) are intended as relative measures
of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally
comparable with the full universe of Moody's rated entities, but
only with NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country
modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale ratings, please refer to Moody's Rating Implementation
Guidance published in August 2010 entitled "Mapping Moody's National
Scale Ratings to Global Scale Ratings."
Moody's has assessed the impact of a systemic event on the ratings
to the senior notes. Moody's assumes two inputs in its analysis
i) the economic resiliency of the country (country's economic strength
and its institutional strength) and ii) an event loss (an assumed worse
case loss to the structure in the event of a systemic problem).
Moody's Investors Service received and took into account a third
party due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a neutral impact
on the rating.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The reports mentioned above are available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Additional research, including the new issue report for this transaction
and reports for prior transactions, are available at www.moodys.com.
In addition Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Moody's Investors Service South Africa (Pty) Ltd.
Moody's assigns definitive ratings to South African RMBS issued by Blue Granite Investments No. 1 (Pty) Ltd
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