London, 26 October 2018 -- Moody's Investors Service ("Moody's") has today assigned definitive long-term
credit ratings to the Notes issued by Amber House Fund 5 (RF) Limited
as detailed below:
....ZAR 540M Class A1 Secured Floating Rate
Notes due November 2053, Definitive Rating Assigned A2 (sf))/Aaa.za
(sf)
....ZAR 940M Class A2 Secured Floating Rate
Notes due November 2053, Definitive Rating Assigned A2 (sf)/Aaa.za
(sf)
....ZAR 135M Class A3 Secured Fixed Rate Notes
due November 2053, Definitive Rating Assigned A2 (sf)/Aaa.za
(sf)
....ZAR 77M Class B Secured Floating Rate
Notes due November 2053, Definitive Rating Assigned Ba1 (sf)/Aa2.za
(sf)
....ZAR 54M Class C Secured Floating Rate
Notes due November 2053, Definitive Rating Assigned Ba3 (sf)/A3.za
(sf)
The ZAR 54M Class D Secured Floating Rate Notes due November 2053 and
the ZAR 45M Start-Up Loan have not been rated.
This transaction represents the 17th securitisation transaction rated
by Moody's backed by home loans originated by SA Home Loans (Pty) Ltd
("SAHL"; not rated). The assets supporting the Notes,
which amount to around ZAR 1,450.5 million, consist
of South African prime residential home loans extended to individuals
and are backed by first economic lien mortgages on residential properties
located in South Africa. 83% of borrowers have their instalments
directly deducted from the employees' payrolls, thereby decreasing
the probability of borrower default. A significant portion of the
pool comprises home loans granted to employees of various national and
provincial government departments.
The portfolio is serviced by SAHL, who also acts as cash manager.
The Standard Bank of South Africa Limited ("SBSA"; Baa3 / P-3,
Baa2(cr) / P-2(cr) and Aa1.za / P-1.za) has
been appointed as the back-up servicer and administrator at transaction
close. SBSA is contractually bound to step in as servicer and administrator
upon a servicer event of default by SAHL. In case of a servicer
event of default immediately before any payment date, SBSA will
be paying interest on the Notes and items senior thereto based on estimates.
RATINGS RATIONALE
The rating of the Notes is based on an analysis of: (i) the characteristics
of the underlying pool of home loans; (ii) sector wide and originator
specific performance data; (iii) protection provided by credit enhancement;
(iv) the roles of external counterparties; and (v) the structural
integrity of the transaction.
The expected portfolio loss of 1.7% of the portfolio at
closing and the MILAN Required Credit Enhancement "MILAN CE" of 13.0%
served as input parameters for Moody's cash flow model, which is
based on a probabilistic lognormal distribution.
The key drivers for the portfolio expected loss, which at 1.7%
is in line with an average South African RMBS transaction, are:
(i) 19 years of vintage data from the originator's book, showing
a cumulative default rate around 4-5% for the home loans
paid via salary deductions and 6-7% for home loans with
loan to value ratio up to 85%; (ii) 16 years of cumulative
recovery data from the originator's book, showing that the overall
blended recovery rate considering all types of property sales is above
90%; (iii) potential deterioration of portfolio composition
during the revolving period with the share of home loans paid via salary
deductions decreasing to 67.5% from 83% in the pool;
(iv) the current and future macroeconomic environment in South Africa;
and (v) benchmarking with other South African RMBS transactions.
The key drivers for the MILAN CE, which at 13.0% is
in line with average South African RMBS transaction, are:
(i) the weighted average loan to value ratio of around 74.4%;
(ii) the possibility for redraws, further advances and further loans,
and additional loans during revolving period, tap period and pre-funding
period, subject to tight portfolio covenants; (iii) the assumption
that in a stressed scenario only 32.5% of the borrowers
will continue paying by salary deductions; and (iv) benchmarking
with other EMEA RMBS transactions.
Interest Rate Risk Analysis: The portfolio comprises floating rate
loans linked to 3-month JIBAR that reset on the same day as the
3-month JIBAR payable under all the Notes other than the Class
A3 fixed-rate note, and the Issuer has entered into an interest
rate swap with SBSA in order to hedge the fixed-floating rate risk
arising from the Class A3 Notes. Under the swap, the Issuer
receives a fixed rate and pays a floating rate of 3-month JIBAR
plus a spread. The notional of the swap is be equal to the outstanding
amount of the Class A3 Notes. As a result, there is no residual
basis risk between the interest rate on the loans and the interest rate
on the Notes. Moody's applied a haircut to the portfolio yield
to account for spread compression due to the earlier amortization of loans
with higher interest rate.
The transaction envisages a revolving period of up to three years,
a tap period of up to 6 quarters and a pre-funding period of one
quarter after closing. In addition, the Issuer is obliged
to fund redraws, subject to certain conditions, and,
at its discretion, can fund further advances and further loans until
the payment date falling in August 2023. There are portfolio covenants
constraining the changes in portfolio composition due to redraws,
further advances and further loans, and additional loans added during
the revolving, the tap and pre-funding periods.
Transaction structure: The transaction benefits from an amortising
reserve fund equal to 4.25% of the Notes original balance,
an equivalent of around ZAR 76.5 million. The reserve fund
is fully funded at closing by a subordinated loan from SAHL Investment
Holdings Proprietary Limited and a portion of the proceeds of the Notes
issuance. The reserve fund can be used to pay senior fees and interest
on the Class A1 to Class C Notes. After August 2023 the reserve
fund will start to amortise in the event of a principal deficiency to
an amount no less than 4.25% of the pool outstanding balance,
with a floor equal to 0.15% of the initial Notes balance
to cover such principal deficiency. The reserve fund can act as
credit support and cover PDL at final legal maturity of the Notes.
The coupon rate on the Class A1 Notes will step-up in August 2021,
whereas the coupon rates on the Class A2, A3 and B Notes will step-up
in August 2023.
The redraw reserve sized at 1.0% of the Notes balance at
closing. The redraw reserve is available to fund redraws,
further loans and further advances prior to August 2023. The unutilized
balance of the redraw reserve will be used to repay outstanding Notes
on August 2023 interest payment date.
In Moody's opinion, the structure allows for timely payment of interest
and ultimate payment of principal with respect to the Class A, B
and C Notes by legal final maturity.
Principal Methodology
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in September 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The analysis undertaken by Moody's at the initial assignment of ratings
for RMBS securities may focus on aspects that become less relevant or
typically remain unchanged during the surveillance stage. Please
see "Moody's Approach to Rating RMBS Using the MILAN Framework" for further
information on Moody's analysis at the initial rating assignment and the
on-going surveillance in RMBS.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors that may lead to an upgrade of the ratings include significantly
better than expected performance of the pool, together with an increase
in the credit enhancement of the Notes. However, the upgrade
potential is limited as there is a degree of linkage between the rating
of the Notes and that of sovereign, and the Government of South
Africa's rating is currently with stable outlook. Factors that
may cause a downgrade of the ratings include significantly different loss
assumptions compared with our expectations at close due to either a change
in economic conditions from our central scenario forecast or idiosyncratic
performance factors would lead to rating actions. For instance,
should economic conditions be worse than forecast, the higher defaults
and loss severities resulting from a greater unemployment, worsening
household affordability and a weaker housing market could result in downgrade
of the ratings. A deterioration in the Notes available credit enhancement
could result in a downgrade of the ratings. Counterparty risk could
cause a downgrade of the ratings due to a weakening of the credit profile
of transaction counterparties. Additionally an increase in South
Africa sovereign risk or unforeseen regulatory and legal changes may also
result in the downgrade of the ratings.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
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.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
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
Barbara Rismondo
Senior Vice President/Manager
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
