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Rating Action:

Moody's assigns new definitive ratings and takes rating actions on notes issued by the South African RMBS The Thekwini Fund 10 (RF) Ltd

12 Nov 2012

London, 12 November 2012 -- Moody's Investors Service has taken the following rating actions on notes issued by The Thekwini Fund 10 (RF) Ltd ("Thekwini 10"):

....Rand428.0M Class A4 Mortgage Backed Floating Rate Notes due October 2038, Assigned A1 (sf) / Aaa.za (sf)

....Rand664.0M Class A5 Mortgage Backed Floating Rate Notes due October 2038, Assigned A1 (sf) / Aaa.za (sf)

....Rand70.0M Class A6 Mortgage Backed Fixed Rate Notes due October 2038, Assigned A1 (sf) / Aaa.za (sf)

....Rand111.0M Class B2 Mortgage Backed Floating Rate Notes due October 2038, Assigned Baa3 (sf) / A2.za (sf)

....Rand81.0M Class C2 Mortgage Backed Floating Rate Notes due October 2038, Assigned Ba3 (sf) / Baa3.za (sf)

Moody's has not rated the Rand46.0M Class D2 Mortgage Backed Floating Rate Notes due October 2038.

Downgraded the following ratings:

....Rand105.0M Class B1 Mortgaged Backed Floating Rate Notes due October 2038, Downgraded to Baa3 (sf); previously on Oct 11, 2012 Baa2 (sf) Placed Under Review for Possible Downgrade

Confirmed the following ratings:

....Rand105.0M Class B1 Mortgaged Backed Floating Rate Notes due October 2038, confirmed at A2.za (sf); previously on Oct 11, 2012 A2.za (sf) Placed Under Review for Possible Downgrade

....Rand100.0M Class C1 Mortgaged Backed Floating Rate Notes due October 2038, confirmed at Ba3 (sf) / Baa3.za (sf) previously on Oct 11, 2012 Ba3 (sf) / Baa3.za (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

--New Issuance

This rating action relates to the issuance of ZAR 1,400 Million of new notes that rank pari-passu with each existing class of notes issued by Thekwini 10. The total notes will increase to ZAR 3.200 million. The transaction is one of thirteen term securitisation of South African residential mortgage loans originated by SA Home Loans (Pty) Ltd ("SAHL") (not rated). The assets supporting the notes are prime mortgage loans secured on residential properties located in South Africa. SAHL is the servicer and administrator and the Standard Bank of South Africa ("SBSA")(A3 /P-2) is the back-up servicer and administrator.

A unique feature for this transaction, which differs from previous Thekwini transactions, relates to the Class A3 & A6 note which will initially pay a fixed rate coupon up to the IPD in July 2017. It will then switch to a floating rate linked to 3 month JIBAR. SBSA will provide a interest rate swap between the floating rate due on the mortgage loans and the fixed rate payable on these notes. Furthermore the Class A2/A5 and A3/A6 notes will pay principal sequentially until the IPD in July 2017 when they will switch to pro-rata principal payments. In addition the account bank and swap counterparty triggers have been lowered when compared to previous Thekwini transactions. As such the Ratings of this transaction will exhibit a greater linkage to the ratings of Standard Bank than previous transactions.

The ratings are primarily based on the credit quality of the portfolio, its diversity, the structural features of the transaction and its legal integrity. From the assessment of the credit quality of the underlying mortgage loan pool, Moody's determined the portfolio expected loss of 2.5% and MILAN Credit Enhancement (CE) of 11%.

The MILAN CE of 11.0% is lower than the sector average and is primarily due to (i) lower than average current weighted average LTV 67.6%; (ii) relatively short revolving period allowing for the addition of new mortgage loans for 6 months from this issuance; (iii) 16.8% of self employed borrowers, average for the SA market; (iv) unique 9.9% of "Edge" mortgage loans which have an initial interest-only period; and (v) 9.8% of non-owner occupied mortgage loans, average for the SA market.

The key drivers for the portfolio expected loss are (i) the historical default and loss performance on previous Thekwini transactions; (ii) performance of the SAHL book; (iii) exposure to "Edge" home loan product; (iv) benchmarking with comparable transactions in the South Africa RMBS market; and (v) the current economic environment in South Africa.

--Rating Downgrade/Confirmation

On the 11th October 2012 the Class B1 & C1 notes issued by Thekwini 10 were placed on review for downgrade. The review placements primarily reflected the need to reassess the adequacy of credit enhancement levels, given the higher risk of economic instability and political uncertainty. Based on Moody's initial assessment, securities placed on review were deemed to have inadequate credit enhancement to meet the rating agency's expectation of increased loss volatilities and the probability of high severity loss scenarios, which necessitate increased credit enhancement for the same rating level.

As part of the tap issuance the deal has been restructured to increase credit enhancement to the rated notes. The Subordinated loan has been increased as a percentage of issued notes from 2.15% to 2.5% and the unrated D notes has been increased as a percentage of issued notes from 1.11% to 2.06%. This has resulted in a 29% increase in credit enhancement for the C notes from 3.2% to 4.5% and an 16% increase in credit enhancement for the B notes from 8.6% to 10%.

Moody's has determined that the increase in credit enhancement for the C notes at these rating levels is sufficient to compensate for our expectations of increased loss volatilities and as such has confirmed the ratings on the Class C1 notes.

Moody's has determined that the new credit enhancement levels for the B notes is consistent with a Baa3 (sf) / A2.za (sf) rating level. The main drivers of the ratings are explained under the new issuance rationale above.

The 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 Moody's has about 12 years of historical performance data. The primary source of uncertainty surrounding our assumptions is the limited data points in a highly stressed environment 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 2.5% of current balance to 5.0% of current balance and the MILAN CE was maintained at 11.0%, the model output indicates that the Class A4, A5 and A6 notes would have been Aaa.za, 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.

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 Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

The principal methodology used in this rating was Moody's Approach to Rating RMBS in Europe, Middle East, and Africa published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

In rating this transaction, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche.

As such, Moody's analysis encompasses the assessment of stressed scenarios.

Moody's noted that on 2 July 2012, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating implementation guidance for the temporary use of cash in structured finance transactions. If the revised rating implementation guidance is implemented as proposed, the rating on the notes should not be negatively affected. Please refer to Moody's Request for Comment, entitled "The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.

Moody's also noted that on 2 July 2012, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating implementation guidance for its "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions". If the revised rating implementation guidance is implemented as proposed, the rating on the Notes should not be negatively affected. Please refer to Moody's Request for Comment, entitled "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

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

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in this transaction.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF304228.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

John Paul Truijens
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
SUBSCRIBERS: 44 20 7772 5454

Michelangelo Margaria
VP - Senior Credit Officer
Structured Finance Group
Telephone:+39-02-9148-1100

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns new definitive ratings and takes rating actions on notes issued by the South African RMBS The Thekwini Fund 10 (RF) Ltd
No Related Data.
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