ZAR [2,000] Million of Debt Securities Affected
Johannesburg, February 03, 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 1 (PRM -- Series 1):
Rand [2,000]M [A] Notes, Assigned (P)Aaa.za
(sf)
Rand [2,000]M [A] Notes, Assigned (P)Aa2 (sf)
On the note refinancing date, (15 February 2011), it is anticipated
the class A1-1, A1-2, A1-3, B and
C notes will be refinanced by the issue of the class [A] note.
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 [A] and withdraw the definitive ratings
on the current outstanding notes. A definitive rating may differ
from a provisional rating.
RATINGS RATIONALE
The transaction represents the sixth securitisation of South African residential
mortgage loans originated by Investec Bank Limited ("Investec")
(A2/P-1)) and the first refinancing of the notes within PRM --
Series 1. PRM - Series 1 was originally rated by Moody's
in December 2006. The assets supporting the notes, which
amount to ZAR 2.0 billion, are prime mortgage loans secured
on residential properties located in the South Africa. Investec
is the contractual servicer and administrator. The revolving period
is [3] years, subject to 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 [23.0]% 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 MILAN Aaa Credit Enhancement number is the fact
that the structure allows for the replenishment of the portfolio subject
to amongst others portfolio limits, notably i) the weighted-average
obligated loan-to-value (LTV) of [71.6]%
plus 5%; (ii) self employed limit of 30% (currently
[25.3]%); iii) buy-to-let limit
of 25% (currently [19.5%]); and iv) jumbo
loans limit (mortgage loans between ZAR3 to ZAR5 million) of 4%
(currently [3.6]%). The MILAN Aaa CE is partially
offset by the high weighted average seasoning of the pool ([48.9]%
of the pool is more than 5 years seasoned) and the fact that [90]%
of borrowers have been fully paying for more than 2 years.
Compared to other standard South African RMBS transactions, PRM
- Series 1 has a number of unique features namely: i) negative
excess spread of [0.66]% per annum due to the higher
expected note funding costs; ii) non-amortising reserve fund
of 18.95% of the initial note balance earning an interest
rate of 3 month Jibar +1.00% (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 1 (Pty) Ltd
and PRM -- Series 1, 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 ZAR576.5 million of which there
is currently dedicated redraw facilities of ZAR1,050 million.
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
(4% portfolio limit) iv) benchmarking with comparable transactions
in the South Africa RMBS market and iv) 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 1 of [0.02]%.
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 [20.7]%
to [36.8]%, the model output indicates that the
Class A note would have been A2/Aa2.za assuming that all other
factors remain equal. However, it should be noted that the
rating outcome on the Class A note is more sensitive to the level of interest
rate assumed on the reserve fund.
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 principal 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.
The reports mentioned above are available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Additional research, including the pre-sale report for this
transaction and reports for prior transactions, are available at
www.moodys.com. In addition Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck
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
Milan
Michelangelo Margaria
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
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 1
