Global Credit Research -- 06 Dec 2012
London, 06 December 2012 -- Moody's Investors Service has today taken rating actions on eight South
African residential mortgage-backed securities (RMBS) transactions
following its reassessment of South African RMBS . The rating agency's
reassessment takes into consideration the risks to RMBS ratings following
the deterioration of the credit quality of the South African sovereign.
Specifically, Moody's has today downgraded the global scale ratings
of one senior note, 19 junior notes and confirmed the global scale
ratings of 2 senior notes and 2 junior notes in eight South African RMBS
transactions. In addition Moody's has today downgraded the
national scale ratings of one senior note, 16 junior notes and confirmed
the national scale ratings of 2 senior notes and 3 junior notes in the
same eight South African RMBS transactions. The rating actions
are driven primarily by the reassessment of credit enhancement adequacy
for each of the rated notes, given the increased risk of economic
instability and political uncertainty as reflected by the lowering of
the country ceiling of South Africa. The downgrades range from
1 to 3 notches with an average of 1 notch. One South African RMBS
transaction, Private Residential Mortgages (Proprietary) Limited
-- Series 1, remains under review for downgrade pending resolution
of a restructuring proposal.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF309655
for the list of affected ratings. This list is an integral part
of this press release. For a detailed rationale on each rating
action, please refer to the list of affected credit ratings.
RATINGS RATIONALE
--DRIVER FOR DOWNGRADE AND CONFIRMATIONS: REASSESSMENT
OF CREDIT ENHANCEMENT ADEQUACY FOR SENIOR AND SUBORDINATED NOTES
Moody's has reassessed the adequacy of credit enhancement levels,
given the higher risk of economic instability and political uncertainty
in South Africa. In performing the reassessment Moody's incorporated
the new maximum achievable rating in South Africa as a consideration in
the asset loss distributions to ensure such distributions capture the
increased probability of high severity loss scenarios. Refer to
"Moody's Approach to Rating RMBS in Europe, Middle East,
and Africa" for more detail on our approach to assessing loss distributions
in markets with a local currency ceiling. http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF274702
Key drivers for the downgrade of the South Africa's government bond
rating included; 1) a decline in the government's institutional
strength amidst increased socio-economic stresses and 2) a negative
investment climate caused by infrastructure shortfalls; high labour
costs and political instability. These factors combine to create
weakening macroeconomic conditions that will elevate consumer credit risk.
In addition retail credit consumers will also come under further pressure
should the current low-interest rate environment change.
As a result of these considerations Moody's has increased its expectations
of higher loss scenarios for residential mortgage backed assets.
Based on Moody's expectation of increased loss volatilities and
the increased probability of high severity loss scenarios; 1) securities
whose ratings were downgraded were deemed to have inadequate credit enhancement
to sustain their previous rating levels, 2) securities whose ratings
were confirmed were deemed to have adequate credit enhancement to sustain
their current rating levels.
-- OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
Deterioration of the general economic environment and specifically,
the real estate and consumer credit market beyond the current consensus.
All key modelling assumptions apart from loss volatility have not been
updated, loss volatility has been increased as a result of the incorporation
of the new maximum achievable rating in South Africa as a consideration
in the asset loss distributions, as described above. Cash-flow
analysis has been updated to account for the passage of time and changes
in asset and liability levels as reflected in transaction investor reports.
The principal methodology used in these ratings 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 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 ".mx"
for Mexico. 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".
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 ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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 related to the monitoring of these transactions in the past
six months.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities or their 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 review of South African RMBS sector triggers rating actions on 8 transactions
