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Rating Action:

Moody's assigns definitive ratings to South African RMBS issued by Blue Granite Investments No. 1 (Pty) Ltd

26 Nov 2010

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.

RATINGS RATIONALE

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 decrease.

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 2006.

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.

REGULATORY DISCLOSURES

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 Service information.

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.

Johannesburg
Dion Bate
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

Milan
Michelangelo Margaria
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100

Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa

Moody's assigns definitive ratings to South African RMBS issued by Blue Granite Investments No. 1 (Pty) Ltd
No Related Data.
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