ZAR [] million ABS Notes provisionally rated, relating to a portfolio of South African auto financing contracts
Madrid, April 20, 2018 -- Moody's Investors Service ("Moody's") has assigned the following provisional
ratings to Notes to be issued by Transsec 3 (RF) Limited:
....ZAR []M Class A5 Notes due May 2019,
Assigned (P)P-3 (sf) / (P)P-1.za (sf)
....ZAR []M Class A4 Notes, due
November 2027, Assigned (P)A2 (sf) / (P)Aaa.za (sf)
....ZAR []M Class A6 Notes, due
November 2027, Assigned (P)A2 (sf) / (P)Aaa.za (sf)
....ZAR []M Class A7 Notes, due
November 2027, Assigned (P)A2 (sf) / (P)Aaa.za (sf)
....ZAR []M Class B Notes, due
November 2027, Assigned (P)Ba1 (sf) / (P)Aa3.za (sf)
Moody's has not assigned a rating to the Subordinated Loan, the
balance of which will be increased to ZAR [] M following additional
drawing at the tap issuance date.
RATINGS RATIONALE
The transaction is a cash securitisation of instalment sales agreements
extended to borrowers classified as small and medium sized taxi businesses
located in South Africa. The loans were originated by SA Taxi Development
Finance (Pty) Ltd ("SA Taxi"), the "Originator", through Potpale
Investments (RF) (Pty) Ltd, a special purpose warehousing vehicle.
The Originator is not rated, and is ultimately owned by Transaction
Capital Limited (NR). This is the fifth public securitisation by
the Originator. The Originator is also acting as servicer in the
transaction.
This proposed first tap issuance follows the initial issue which closed
in November 2017. The newly issued Class A4, A6, A7
and B Notes will have the same scheduled maturities and step up dates
and will repay pro-rata and pari passu with the previously issued
Notes.
As of March 2018, the ZAR [916.6]M portfolio (ZAR [561.7]M
of existing assets and ZAR [354.9]M of provisional assets)
backing the Notes contained [2,253] contracts with a weighted
average seasoning of six months. The portfolio consists of instalment
sale agreements granted to finance new or used minibus taxi vehicles.
The portfolio is collateralized by [80.9]% new and
[19.1]% used vehicles, and the majority of financed
vehicles are Toyota Seskifile. The weighted average interest rate
is [24.0]%. The originator has the option to
sell a further ZAR []M of additional assets into the pool by the
August 2018 interest payment date (the "pre-funding amount").
The final pool size and the pre-funding amount (if any) will be
determined based on the amount of the notes issued.
The structure does not include a revolving period. However the
addition of new assets is contemplated during the tap period of 6 quarters
from the initial issue date and is subject to issuance of newly rated
Notes. Moody's will review the additional portfolios before assigning
ratings to the additional tap Notes. The programme conditions suggest
such ratings should not be lower than the provisional ratings assigned
to the equally ranking Notes prior to the initial issue date. Current
issuance additionally includes a short pre-funding period of up
to two months. The programme contains portfolio covenants compliance
with which is a condition of any future tap issuances and the pre-funding.
Under the portfolio covenants the share of contracts collateralized by
used vehicles cannot exceed 30% and minimum margin over prime rate
is 13%.
The transaction benefits from credit strengths such as the granularity
of the portfolio and experience of SA Taxi in origination and securitisation
of minibus taxi financing agreements.
However, Moody's Notes that the transaction features some credit
weaknesses. Historical performance data of SA Taxi's receivables
book shows high levels of arrears and repossessions. Further,
the issuer will advance insurance and car tracking fees on behalf of borrowers
in arrears which could, in certain instances, result in higher
levels of loss if not recouped. The servicer and administrator,
SA Taxi, is unrated and the risk of disruption is mitigated -
to a limited degree - by appointment of Transaction Capital Recoveries
(Pty) Ltd as a back-up servicer. Both SA Taxi and Transaction
Capital Recoveries (Pty) Ltd are subsidiaries of Transaction Capital Limited
but both entities operate independently in different business segments
of the financial industry.
The transaction has a generally sequential amortisation structure with
a possibility of all Notes except for the Class A5 Notes paying pro-rata
subject to occurrence of a step-up date and satisfactory performance.
There is no cash reserve in the transaction. Principal to pay interest
and the liquidity facility will be the transaction's primary sources of
liquidity.
MAIN ASSUMPTIONS
Moody's determined the portfolio lifetime mean loss rate of [6.0]%
and portfolio credit enhancement ("PCE") of [28.0]%.
The mean loss rate captures our expectations of performance considering
the current economic outlook, while the PCE captures the loss we
expect the portfolio to suffer in the event of a severe recession scenario.
Mean loss and PCE are parameters used by Moody's to calibrate its lognormal
portfolio loss distribution curve and to associate a probability with
each potential future loss scenario in its ABSROM cash flow model to rate
consumer loans ABS.
The portfolio expected mean loss level of [6.0]% is
worse than the EMEA auto leases/loans average and is based on Moody's
assessment of the lifetime expectation for the pool taking into account
(i) historical performance of the originator's receivables book,
(ii) the current and future macroeconomic environment in South Africa,
(iii) potential increase in the share of contracts collateralized by used
vehicles during the further tap period, and (iv) benchmarking with
other EMEA auto ABS transactions.
The PCE of [28.0]% is worse than EMEA auto ABS on average
and is based on Moody's assessment of the pool taking into account (i)
historical performance of the originator's book, (ii) the current
and future macroeconomic environment in South Africa, (iii) potential
increase in the share of contracts collateralized by used vehicles during
the further tap period, and (iv) benchmarking with other EMEA auto
ABS transactions. The PCE of [28.0]% results
in an implied coefficient of variation ("CoV") of 81.7%.
METHODOLOGY
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Auto Loan- and Lease-Backed ABS" published in
October 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of Class A Notes is improvement
of the local currency country ceiling of South Africa. Factors
that may cause an upgrade of the ratings of Class B Notes include significantly
better than expected performance of the pool together with an increase
in credit enhancement of Notes.
Factors that may cause a downgrade of the ratings of the Notes include
(i) deterioration of the local currency country ceiling of South Africa,
or (ii) significantly worse than expected performance of the pool,
or (iii) unexpected problems in case of a servicing transfer to the back-up
servicer.
The ratings address the expected loss posed to investors by the legal
final maturity of the Notes. In Moody's opinion, the structure
allows for timely payment of interest and ultimate payment of principal
by legal final maturity. 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.
LOSS AND CASH FLOW ANALYSIS:
Moody's used its cash-flow model Moody's ABSCORE as part of its
quantitative analysis of the transaction. Moody's ABSCORE model
enables users to model various features of a standard European ABS transaction
-- including the specifics of the default distribution of
the assets, their portfolio amortisation profile, yield as
well as the specific priority of payments, swaps and reserve funds
on the liability side of the ABS structure.
STRESS SCENARIOS:
In rating auto leases ABS, expected mean loss rate and PCE are two
key inputs that determine the transaction cash flows in the cash flow
model. Parameter sensitivities for this transaction have been calculated
in the following manner: We tested 9 scenarios derived from the
combination of mean lessee loss: 6.0% (base case),
7.0% (base case + 1.0%), 8.0%
(base case + 2.0%) and PCE: 28.0%
(base case), 31.0% (base case + 3.0%),
34.0% (base case + 6.0%). The
6.0% / 28.0% scenario would represent the
base case assumptions used in the initial rating process.
At the time the rating was assigned, the model output indicated
that the Class A4, A6 and Class A7 Notes would have achieved A3
(sf) / Aaa.za (sf) if the PCE was as high as 34.0%
with a mean loss rate as high as 8.0% (all other factors
unchanged).
Parameter sensitivities provide a quantitative/model indicated calculation
of the number of notches that a Moody's rated 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.
It is not intended to measure how the rating of the security might migrate
over time, but rather how the initial model output for the Class
A4, A6 and A7 Notes might have differed if the two parameters within
a given sector that have the greatest impact were varied. Model
output results for the Class A5, A6 to B Notes are shown in the
pre-sale report for this securitization.
National Scale Credit 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.
Moody's describes its loss and cash flow analysis in the section "Ratings
Rationale" of this press release.
Moody's describes the stress scenarios it has considered for this rating
action in the section "Ratings Rationale" of this press release.
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.
Antonio Tena
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Lyudmila Udot
AVP - Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
