ZAR 505 million ABS notes rated, relating to a portfolio of South African auto financing contracts
London, 08 November 2017 -- Moody's Investors Service ("Moody's") has assigned the following definitive
ratings to notes issued by Transsec 3 (RF) Limited:
....ZAR 70M Class A1 Notes due November 2018,
Definitive Rating Assigned P-3 (sf) / P-1.za (sf)
....ZAR 179M Class A2 Notes due November 2027,
Definitive Rating Assigned A2 (sf) / Aaa.za (sf)
....ZAR 166M Class A3 Notes due November 2027,
Definitive Rating Assigned A2 (sf) / Aaa.za (sf)
....ZAR 90M Class B Notes due November 2027,
Definitive Rating Assigned Ba1 (sf) / Aa3.za (sf)
Moody's has not assigned a rating to the ZAR 68.9M Subordinated
Loan, which will also be issued at closing of the transaction.
Class A4 Notes, due November 2027, will not be issued and
provisional ratings are withdrawn.
Volumes of the issued A2 Notes, A3 Notes and Class B Notes changed
compared to the provisional ratings because the securitized portfolio
volume decreased and Class A4 Notes are not issued. The credit
enhancement provided by subordination does not change for the definitively
rated notes compared to the provisional ratings.
RATINGS RATIONALE
The transaction is a cash securitisation of instalment sales agreements
extended to borrowers classified as small and medium sized taxi businesses
located in South Africa.
The loans were originated by SA Taxi Development Finance (Pty) Ltd ("SA
Taxi"), the "Originator", through Potpale Investments (RF)
(Pty) Ltd, a special purpose warehousing vehicle. The Originator
is not rated, and is ultimately owned by Transaction Capital Limited
(NR). This is the fifth public securitisation by the Originator.
The Originator is also acting as servicer in the transaction.
As of October 2017, the ZAR 567 million portfolio backing the notes
contains 1,386 contracts with a weighted average seasoning of four
months. The portfolio consists of instalment sale agreements granted
to finance new or used minibus taxi vehicles. The portfolio is
collateralized by 78.8% new cars and 21.2%
used vehicles, and the majority of financed vehicles are Toyota
Seskifile. The weighted average interest rate is 24.0%
as of the closing date. The originator will sell further ZAR 7
million of subsequent assets into the pool by February 2018 interest payment
date.
The structure does not include a revolving period. Addition of
new assets during the tap period of 6 quarters from the initial issue
date is subject to issuance of newly rated notes. Moody's will
review the additional portfolios before assigning ratings to the additional
tap notes. The programme conditions suggest such ratings should
not be lower than the provisional ratings assigned to the equally ranking
notes prior to the initial issue date. The programme also contains
portfolio covenants compliance which is a condition of tap issuances.
Under the portfolio covenants the share of contracts collateralized by
used vehicles cannot exceed 30% and minimum margin over prime rate
is 13%.
The transaction benefits from credit strengths such as the granularity
of the portfolio and experience of SA Taxi in origination and securitisation
of minibus taxi financing agreements.
However, Moody's notes that the transaction features some credit
weaknesses. Historical performance data of SA Taxi's receivables
book shows high levels of arrears and repossessions while the economic
prospects in South Africa remain weak. The issuer will advance
insurance and car tracking fees on behalf of borrowers in arrears.
The servicer and administrator, SA Taxi, is unrated and the
risk of disruption is mitigated - to a limited degree -
by appointment of Transaction Capital Recoveries (Pty) Ltd as a back-up
servicer. Both SA Taxi and Transaction Capital Recoveries (Pty)
Ltd are subsidiaries of Transaction Capital Limited but both entities
operate completely independent in different business segments of the financial
industry.
The transaction has a generally sequential amortisation structure with
a possibility of all notes except for A1 notes paying pro-rata
subject to occurrence of a step-up date and satisfactory performance.
There is no cash reserve in the transaction. Principal to pay interest
and the liquidity facility will be the transaction's primary sources of
liquidity.
MAIN ASSUMPTIONS
Moody's determined the portfolio lifetime mean loss rate of 6.0%
and portfolio credit enhancement ("PCE") of 28.0%.
The mean loss rate captures our expectations of performance considering
the current economic outlook, while the PCE captures the loss we
expect the portfolio to suffer in the event of a severe recession scenario.
Mean loss and PCE are parameters used by Moody's to calibrate its lognormal
portfolio loss distribution curve and to associate a probability with
each potential future loss scenario in its ABSROM cash flow model to rate
consumer loans ABS.
The portfolio expected mean loss level of 6.0% is worse
than the EMEA auto leases/loans average and is based on Moody's assessment
of the lifetime expectation for the pool taking into account (i) historical
performance of the originator's receivables book, (ii) the current
and future macroeconomic environment in South Africa, (iii) potential
increase in the share of contracts collateralized by used vehicles during
the further tap period, and (iv) benchmarking with other EMEA auto
ABS transactions.
The PCE of 28.0% is worse than EMEA auto ABS on average
and is based on Moody's assessment of the pool taking into account (i)
historical performance of the originator's book, (ii) the current
and future macroeconomic environment in South Africa, (iii) potential
increase in the share of contracts collateralized by used vehicles during
the further tap period, and (iv) benchmarking with other EMEA auto
ABS transactions. The PCE of 28.0% results in an
implied coefficient of variation ("CoV") of 81.4%.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Auto Loan- and Lease-Backed ABS" published in
October 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of Class A notes is improvement
of the local currency country ceiling of South Africa. Factors
that may cause an upgrade of the ratings of Class B notes include significantly
better than expected performance of the pool together with an increase
in credit enhancement of the notes.
Factors that may cause a downgrade of the ratings of the notes include
(i) deterioration of the local currency country ceiling of South Africa,
or (ii) significantly worse than expected performance of the pool,
or (iii) unexpected problems in case of a servicing transfer to the back-up
servicer.
The ratings address the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and ultimate payment of principal
by legal final maturity. 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.
Provisional ratings were assigned on 17 October 2017.
LOSS AND CASH FLOW ANALYSIS:
Moody's used its cash-flow model Moody's ABSCORE as part of its
quantitative analysis of the transaction. Moody's ABSCORE model
enables users to model various features of a standard European ABS transaction
-- including the specifics of the default distribution of
the assets, their portfolio amortisation profile, yield as
well as the specific priority of payments, swaps and reserve funds
on the liability side of the ABS structure.
STRESS SCENARIOS:
In rating auto leases ABS, expected mean loss rate and PCE are two
key inputs that determine the transaction cash flows in the cash flow
model. Parameter sensitivities for this transaction have been calculated
in the following manner: We tested 9 scenarios derived from the
combination of mean lessee loss: 6.0% (base case),
7.0% (base case + 1.0%), 8.0%
(base case + 2.0%) and PCE: 28.0%
(base case), 31.0% (base case + 3.0%),
34.0% (base case + 6.0%). The
6.0% / 28.0% scenario would represent the
base case assumptions used in the initial rating process.
At the time the rating was assigned, the model output indicated
that the Class A3 notes would have achieved Baa1 (sf) if the PCE was as
high as 34.0% with a mean loss rate as high as 8.0%
(all other factors unchanged).
Parameter sensitivities provide a quantitative/model indicated calculation
of the number of notches that a Moody's rated 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.
It is not intended to measure how the rating of the security might migrate
over time, but rather how the initial model output for the Class
A3 notes might have differed if the two parameters within a given sector
that have the greatest impact were varied. Model output results
for the Class A1, A2 to B notes are shown in the new issue report
for this securitization.
Moody's National Scale Credit 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 credit 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 credit ratings,
please refer to Moody's Credit rating Methodology published in May 2016
entitled "Mapping National Scale Ratings from Global Scale Ratings".
While NSRs have no inherent absolute meaning in terms of default risk
or expected loss, a historical probability of default consistent
with a given NSR can be inferred from the GSR to which it maps back at
that particular point in time. For information on the historical
default rates associated with different global scale rating categories
over different investment horizons, please see http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1060333.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
Moody's describes the stress scenarios it has considered for this
rating action in the section "Ratings Rationale" of this press
release.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Lyudmila Udot
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Armin Krapf
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
