ZAR [1.528] Million of Debt Securities Affected
Johannesburg, May 24, 2011 -- Moody's Investors Service has today assigned provisional credit ratings
to the following classes of notes issued by Private Residential Mortgages
(Pty) Ltd -- Series 2 (PRM -- Series 2):
....Rand1374.693M [A9-F]
Notes, Assigned (P)Aaa.za (sf)
....Rand1374.693M [A9-F]
Notes, Assigned (P)Aa2 (sf)
....Rand57.7665M Class [B5-F]
New Notes, Assigned (P)Aa2.za (sf)
....Rand57.7665M Class [B5-F]
New Notes, Assigned (P)A2 (sf)
....Rand33.2057M Class [C5-F]
New Notes, Assigned (P)A2.za (sf)
....Rand33.2057M Class [C5-F]
New Notes, Assigned (P)Baa3 (sf)
....Rand34.3339M Class [D5-F]
New Notes, Assigned (P)Baa2.za (sf)
....Rand34.3339M Class [D5-F]
New Notes, Assigned (P)Ba2 (sf)
On the note refinancing date, (15 June 2011), it is anticipated
the class A2C, A5C and A6C notes will be refinanced by the issue
of the class [A9-F] notes. In addition, a further
ZAR 872.2 million of notes is anticipated to be issued (Class [A9-F,
B5-F, C5-F and D5-F]) which will increase the
total notes in issue from ZAR 2.589 billion to ZAR3.462
billion. Moody's issues provisional ratings in advance of the final
sale of securities and the above rating reflects Moody's preliminary credit
opinions regarding the transaction only. Upon a conclusive review
of the final documentation and the final note structure, Moody's
will endeavour to assign a definitive rating to the Class [A9-F,
B5-F, C5-F and D5-F] notes and withdraw the
definitive ratings on the Class A2C, A5C and A6C notes. A
definitive rating may differ from a provisional rating.
RATINGS RATIONALE
The transaction represents the fifth securitisation of South African residential
mortgage loans originated by Investec Bank Limited ("Investec")
(A2/P-1)) and the third refinancing of the notes within PRM --
Series 2. PRM - Series 2 was originally rated by Moody's
in November 2007. The assets supporting the notes, which
amount to ZAR 2.589 billion (expected to increase to ZAR3.462
billion after the 6 month prefunding period), are prime mortgage
loans secured on residential properties located in the South Africa.
Investec is the contractual servicer and administrator. The revolving
period is [1.5] years, subject to the next note schedule
maturity date (November 2012) , performance related triggers and
portfolio limits.
The ratings of the note 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 [1.20]% and the MILAN
Aaa required Credit Enhancement of [23.3]% (previously
20.2%) 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 higher MILAN Aaa Credit Enhancement number is the
fact that the structure allows for the replenishment of the portfolio
during the 6 month pre-funding period and 1.5 years of revolving
period subject to amongst others, portfolio limits, notably
i) the weighted-average obligated loan-to-value (LTV)
of [75.6]% plus 5%; (ii) higher self employed
limit of 30% (currently [18.3]%); iii)
higher buy-to-let limit of 30% (currently [17.5%]);
and iv) jumbo loans limit (mortgage loans between ZAR3 to ZAR5 million)
of 7% (currently [2.9]%). The MILAN Aaa
CE is partially offset by the high weighted average seasoning of the pool
([51.9]% of the pool is more than 5 years seasoned)
and the fact that [91.4]% of borrowers have been fully
paying for more than 2 years.
Compared to other standard South African RMBS transactions, PRM
- Series 2 has a number of unique features namely: i) negative
excess spread of [0.02]% per annum due to the higher
expected note funding costs ; ii) non-amortising reserve fund
of [5]% of the initial note balance earning an interest rate
of 3 month Jibar +[1.50]% (provided by Investec
under a guaranteed investment contract (GIC)) - which at the current
Jibar rate is sufficient to fund the negative excess spread; iii)
there are two security structures, Private Mortgages 2 (Pty) Ltd
and PRM -- Series 2, each with their own mortgage loan portfolios,
priority of payments, reserve fund, liquidity facilities and
redraw facilities; and iv) the issuer is obliged to fund potential
credit refunds, currently ZAR[635.9] million of which
there is currently dedicated redraw facilities of ZAR[1.1]
billion. All portfolio limits and performance triggers are based
on the combined portfolio's.
The key drivers for the portfolio expected loss are (i) the historical
default and loss performance on PRM - Series 1 and 2; ii)
performance of the Investec mortgage loan book; (iii) potential jumbo
loan exposure ([7]% portfolio limit); iv) benchmarking
with comparable transactions in the South Africa RMBS market; and
iv) the 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 lower than
other comparable South African RMBS transactions mainly due to the current
level of arrears of the portfolio of [0.7]% of the
current balance of the portfolio and cumulative losses to date on PRM
-- Series 2 of [0.002]%.
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 limited
historical data on the Investec book, the complexity of the transaction,
notably the greater reliance on the interest received on the reserve fund
at the GIC rate 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 [1.2]% of current balance to [3.6]%
of current balance and the MILAN Aaa CE increased from [23.3]%
to [37.3]%, the model output indicates that the
Class A notes would have been [A2/Aa2.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.
The 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.
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
London
Neal Shah
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns provisional ratings to South African RMBS issued by Private Residential Mortgages (Pty) Ltd -- Series 2
