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Rating Action:

Moody's assigns definitive ratings to new Notes issued by The Thekwini Fund 17 (RF) Limited transaction

22 Nov 2021

ZAR2293M of RMBS Note rated, relating to a portfolio of South African residential mortgage loans

London, 22 November 2021 -- Moody's Investors Service ("Moody's") has today assigned definitive short-term credit ratings and definitive long-term credit ratings to the Notes issued by The Thekwini Fund 17 (RF) Limited as detailed below:

....ZAR332M Class Omega 2 Secured Floating Rate Notes due November 2022, Definitive Rating Assigned P-3 (sf) / P-1.za (sf)

....ZAR495M Class A12 Secured Floating Rate Notes due February 2056, Definitive Rating Assigned Baa1 (sf) / Aaa.za (sf)

....ZAR1005M Class A22 Secured Floating Rate Notes due February 2056, Definitive Rating Assigned Baa1 (sf) / Aaa.za (sf)

....ZAR246M Class A32 Secured Fixed Rate Notes due February 2056, Definitive Rating Assigned Baa1 (sf) / Aaa.za (sf)

....ZAR125M Class B2 Secured Floating Rate Notes February 2056, Definitive Rating Assigned Ba1 (sf) / Aaa.za (sf)

....ZAR90M Class C2 Secured Floating Rate Notes February 2056, Definitive Rating Assigned Ba3 (sf) / A2.za (sf)

Moody's has affirmed the ratings of the following outstanding Notes:

....ZAR39M Class Omega Notes, Affirmed P-3 (sf) / Affirmed P-1.za (sf); previously on Mar 24, 2021 Definitive Rating Assigned P-3 (sf) / Assigned P-1.za (sf)

....ZAR503M Class A1 Notes, Affirmed Baa1 (sf) / Affirmed Aaa.za (sf); previously on Mar 24, 2021 Definitive Rating Assigned Baa1 (sf) / Assigned Aaa.za (sf)

....ZAR936M Class A2 Notes, Affirmed Baa1 (sf) / Affirmed Aaa.za (sf); previously on Mar 24, 2021 Definitive Rating Assigned Baa1 (sf) / Assigned Aaa.za (sf)

....ZAR120M Class A3 Notes, Affirmed Baa1 (sf) / Affirmed Aaa.za (sf); previously on Mar 24, 2021 Definitive Rating Assigned Baa1 (sf) / Assigned Aaa.za (sf)

....ZAR107M Class B Notes, Affirmed Ba1 (sf) / Affirmed Aaa.za (sf); previously on Mar 24, 2021 Definitive Rating Assigned Ba1 (sf) / Assigned Aaa.za (sf)

Moody's has upgraded the rating of the following outstanding Notes:

....ZAR80M Class C Notes, Upgraded to Ba3 (sf) / Upgraded to A2.za (sf); previously on Mar 24, 2021 Definitive Rating Assigned B1 (sf) / Assigned A3.za (sf)

Moody's has not assigned ratings to the ZAR82M Class D2 Secured Floating Rate Notes due February 2056 and the ZAR56M Start-Up Loan, which have also been issued at closing of the transaction.

This static transaction represents the 15th public 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 ZAR4,159M, 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. 42.1% of the pool is comprised of high-LTV loans with committed LTV above 80% (of which 41.6% have their scheduled instalments collected by way of payroll deduction).

The portfolio is serviced by SAHL, who also acts as cash manager. The Standard Bank of South Africa Limited ("SBSA"; Ba2 /NP, Ba1(cr) / NP(cr)) has been appointed as the back-up servicer/administrator at transaction close. SBSA will be 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 ratings of the Notes are based on an analysis of the characteristics of the underlying pool of home loans, sector wide and originator specific performance data, protection provided by credit enhancement, the roles of external counterparties and the structural integrity of the transaction.

The expected portfolio loss of 2.75% of the original balance of the portfolio at closing and the MILAN required Credit Enhancement "MILAN CE" of 14.0% 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 2.75% is slightly higher than average for South African RMBS transactions, are: (i) up to 22 years of vintage data from the originator's book; (ii) 10 years of dynamic delinquency data from the originator's book, which show an increasing trend of 180+ delinquency rate during 2020 and a slight reduction in 2021; (iii) the current weighted-average (WA) Loan to Value (LTV) of 75.3%; (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 14.0% is in line with MILAN CE for an average South African RMBS transaction, are: (i) the current WA LTV of around 75.3%, (ii) the possibility for redraws, further advances and further loans subject to portfolio covenants; (iii) a relatively low seasoning of the pool; (iv) non-owner occupied, self-employed and top 20 borrowers accounting for 11.9%, 13.2% and 1.9% of the portfolio at closing respectively; (v) 24.6% of the pool representing loans disbursed to the borrowers who are civil servants that have their scheduled instalments collected by way of payroll deduction (historical performance data suggests that these borrowers are less likely to experience default); and (vi) benchmarking with other South African RMBS transactions.

Repayment of Class Omega Notes by Final Legal Maturity: The Class Omega 2 Notes have a final legal maturity date of twelve months after closing and will be redeemed in accordance with a minimum scheduled amortization profile. In case principal collections from the pool are insufficient to meet the minimum scheduled repayments, the excess spread, the reserve fund and the liquidity facility are available to repay principal on the Class Omega Notes pursuant to the scheduled amortization profile. Moody's has considered stressed scenarios with low prepayment rates, and the absence of liquidity facility in order to assign the short-term rating to this Note.

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 the Notes. Therefore, there is no basis risk between the interest rate on the loans and the interest rate on the Notes. Among the new notes, the Class A32 Notes are fixed rate Notes and the issuer has entered into an interest rate swap in order to hedge the fixed-floating rate risk. Under the swap, the issuer will receive a fixed rate and pay a floating rate of JIBAR plus a spread. The notional is equal to the outstanding amount of Class A32 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 does not envisage a revolving period. However, 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 February 2026. There are global portfolio limits which, to some extent, constrain the changes in portfolio composition due to redraws, further advances and further loans.

Transaction structure: The transaction benefits from an amortising reserve fund equal to 4.0% of the Notes balance and equivalent to around ZAR 169 million. The reserve fund can be used to pay interest on Class Omega, A, B, C, and D Notes and principal repayment of Class Omega. After February 2026 the reserve fund will start to amortize to an amount no less than 4.0% of the outstanding balance of the pool, with a floor equal to 0.15% of the initial pool. The reserve fund can act as credit support and cover PDL at final legal maturity of the Notes. The coupons on the Class A12 Notes will step-up in February 2024 and the coupons on the Class A22 to D2 Notes will step-up in February 2026.

SBSA provides a liquidity facility sized at 4.5% at closing: (i) to cover shortfalls in senior fees and interest payments on the Class Omega to C Notes; and (ii) to fund redraws, further loans and further advances.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was 'Moody's Approach to Rating RMBS Using the MILAN Framework' published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1248130. Alternatively, 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 a rating for an RMBS security 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.

Today's action has considered the coronavirus pandemic's significant impact on South African economic activity and the ongoing effect on the consumer assets. It will take several years for real economic output to recover to the pre-pandemic level of activity with a stronger recovery impeded by the risk of new waves of infections and limited vaccine access and distribution.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

Factors that may lead to an upgrade of the ratings include an improvement of the South African country ceiling, and 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 the sovereign. Factors that may cause a downgrade of the ratings include significantly higher losses compared with our expectations at close due to either a change in economic conditions from our central scenario forecast or idiosyncratic performance factors. Lower than expected CPR or higher than expected further advances or redraws might lead to a downgrade of the Class Omega Notes short-term rating. 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_1280297.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Duy-Anh Bui
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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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