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Rating Action:

Moody's confirms ratings in South African RMBS issued by Blue Granite

22 Apr 2010

Approximately ZAR629.5 million of debt securities affected.

Johannesburg, April 22, 2010 -- Moody's Investors Service today has confirmed the ratings on the junior classes of notes issued by Blue Granite Investments No 3 (Pty) Ltd (Blue Granite 3) and Blue Granite Investments No.4 (Pty) Ltd (Blue Granite 4).

The 7 affected tranches, listed at the end of this press release, had been placed on review for possible downgrade on 24 December 2008 prompted by worse than expected collateral performance. Today's rating actions conclude the review and take into account the current performance and revised loss expectations for the two mortgage portfolios backing these transactions as well as the build-up of credit enhancement from the structural protection mechanisms in each transaction.

TRANSACTION OVERVIEW

The assets supporting the notes of both transactions are first ranking mortgage loans secured by residential properties located in South Africa and were originated and are currently serviced by The Standard Bank of South Africa Limited (A1/Prime-1)*.

Blue Granite 3 closed in November 2006 with a 3 year revolving period ending November 2009. The original weighted average loan-to-value (LTV) at closing was approximately 76.5% and has decreased to approximately 67.8% due to a combination of house price appreciation and loan amortisation. Since the early stop purchase event in April 2009 Blue Granite 3 has reduced its pool factor to 94%.

The cumulative losses realised since closing in Blue Granite 3 amount to 0.49% of the original portfolio balance, with an average loss severity since inception of 6.1%. The arrears reserve fund is currently fully funded and represents 1.58% of the current pool balance.

Blue Granite 4 closed in March 2007 with a 3 year revolving period ending March 2010. The original weighted average LTV at closing was approximately 78.3% and has decreased to approximately 69.4% due to a combination of house price appreciation and loan amortisation. Since the early stop purchase event in March 2009 Blue Granite 4 has reduced its pool factor to 90%.

The cumulative losses realised since closing in Blue Granite 4 amount to 0.58% of the original portfolio balance, with an average loss severity since inception of 13.9%. The arrears reserve fund of 1.37% of current balance is not fully funded representing 78% of the required arrears reserve fund target.

For both transactions the arrears reserve fund is funded by available excess spread and is available to cover for potential losses during the life of the transactions. Furthermore, the arrears reserve fund can only be released if delinquencies greater than 90 days falls below 0.6% of the initial portfolio balance amount. Moody's considers the arrears reserve release level is sufficiently tight to ensure availability of the arrears reserve fund for potential losses under stressed performance scenarios.

REVISED PERFORMANCE EXPECTATIONS

SBSA stopped the purchase of non-performing mortgage loans for Blue Granite 3 and Blue Granite 4 within the first half of 2009. As expected the delinquencies greater than 90 days exceeded the predefined arrears trigger levels which resulted in the respective revolving periods to stop and excess spread captured into the arrears reserve. As per the latest reporting date in January 2010, 90+ days delinquencies represented 3.91% of the outstanding balance of the portfolio in Blue Granite 3 and 4.51% in Blue Granite 4 as at March 2010. Borrowers continue to remain under pressure in servicing their mortgage loan, however, Moody's has observed delinquencies in the 30 to 60 day and 60 to 90 day buckets begin to stabilise which should ease the pressure on the 90+ delinquency bucket going forward. Moody's does expect the 90+ day delinquency bucket to remain under pressure for 2010 resulting from the prolonged foreclosure process caused by the implementation of the National Credit Act in June 2007.

Moody's has assessed updated loan-by-loan information of the outstanding portfolios to determine the volatility of future losses. As a consequence, Moody's has revised its Milan Aaa CE for Blue Granite 3 to 13.50% and 13.80% for Blue Granite 4. As of closing, these numbers were 18.80% and 17.85% respectively. The reduction in the MILAN Aaa CE was primarily driven by reduced weighted average LTV's as well as the fact that given the revolving period has stopped Moody's no longer models to the portfolio limits.

Considering the current amount of realised losses, and completing a roll-rate and severity analysis for the non-defaulted portion of the portfolio, Moody's has increased its total loss expectations to 2.0% from 1.50% of the original portfolio balance for Blue Granite 3 and increased its total loss expectation to 2.25% from 1.50% of original balance for Blue Granite 4.

The loss expectation and the Milan Aaa CE are the two key parameters used by Moody's to calibrate the loss distribution curve, which is one of the inputs into our RMBS cash-flow model. Moody's has also factored into its analysis the negative sector outlook for South African RMBS. For more detailed information please refer to Moody's Economy.Com.

Moody's concludes that there is sufficient additional credit enhancement through the build up of the arrears reserve and to a lesser extent the sequential amortisation of the notes to offset the increased loss expectations in each of the transactions. Moody's will continue to closely monitor these transactions to check if the current performance levels remain within Moody's revised assumptions.

COMPLETE LIST OF RATING ACTIONS

Issuer: Blue Granite Investments No 3 (Pty) Ltd

- Class D, Mortgage Backed Floating Rate Notes, confirmed at Baa2/A2.za; previously on 24 December 2008 Baa2/A2.za and placed under review for possible downgrade

- Class E, Mortgage Backed Floating Rate Notes, confirmed at Ba2/Baa2.za; previously on 24 December 2008 Ba2/Baa2.za and placed under review for possible downgrade

- Class F, Mortgage Backed Floating Rate Notes, confirmed at B2/Ba3.za; previously on 24 December 2008 B2/Ba3.za and placed under review for possible downgrade

Issuer: Blue Granite Investments No 4 (Pty) Ltd

- Class C, Mortgage Backed Floating Rate Notes, confirmed at A2; previously on 24 December 2008 A2 and placed under review for possible downgrade

- Class D, Mortgage Backed Floating Rate Notes, confirmed at Baa2; previously on 24 December 2008 Baa2 and placed under review for possible downgrade

- Class E, Mortgage Backed Floating Rate Notes, confirmed at Ba2; previously on 24 December 2008 Ba2 and placed under review for possible downgrade

- Class F, Mortgage Backed Floating Rate Notes, confirmed at B2; previously on 24 December 2008 B2 and placed under review for possible downgrade

Moody's ratings address the expected loss posed to investors by the legal final maturity of the notes. Moody's ratings address only the credit risks associated with the transactions. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

Moody's initially analysed and monitors these transactions using the rating methodology for South African RMBS transactions as described in the Rating Methodology report "Moody's Approach to Rating South African RMBS", January 2005 and it monitors the performance of the transaction using the rating methodology described in the Rating Methodology report "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction", December 2008. 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. 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.

* Global Local Currency Rating

For further information, please visit our website www.moodys.com or contact Moody's Client Service Desk (+44 20) 7772 5454.

London
Barbara Rismondo
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's confirms ratings in South African RMBS issued by Blue Granite
No Related Data.
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