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Rating Action:

Moody's reviews Blue Granite RMBS transactions for possible downgrade

24 Dec 2008
Moody's reviews Blue Granite RMBS transactions for possible downgrade

Approximately ZAR629.5 million of debt securities affected.

Paris, December 24, 2008 -- Moody's Investors Service today placed on review 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). No rating action was taken on Blue Granite Investments No 1 (Pty) Ltd. A complete list of today's rating actions can be found at the end of this press release. Today's rating actions were prompted by worse than expected collateral performance.

Since July 2007, in all the Blue Granite transactions, the Standard Bank of South Africa (global ratings local currency of Baa1/Prime-2 ) (SBSA) has been purchasing non-performing mortgage loans based on its determination of their "fair value", which can be at a discount to par. As a result, on one hand, the loans backing these transactions have shown higher level of cumulative losses than other South Africa transactions with similar collateral and seasoning. On the other hand, the 90 day arrear levels for the loans in these transactions have been understated, as non-performing loans were purchased out instead of going through the normal foreclosure process. All losses realised to date have been covered by available excess spread. So far the delinquency trigger has not been breached in any of these transactions, in part as a consequence of the arrears understatement due to the repurchase of delinquent loans.

Considering the performance shown so far Moody's has adjusted its lifetime loss expectation on the pool of loans backing the notes, to a range of 1.85-2.15 from a range of 1.25-1.65 of the original balance of the loans in Blue Granite 3 and to a range of 2-2.5 from a range of 1.25-1.65 of the original balance of the loans in Blue Granite 4. Moody's revised loss expectations are taking into account the effect of the repurchases on the realised losses as well as on the delinquency levels and trends. Moody's has not updated its loss expectation for Blue Granite Investments No 1 (Pty), which is showing a performance in line with expectations at closing.

SBSA has indicated its intention to stop the purchase of non performing mortgage loans for Blue Granite 4 and, within the first half of 2009, also for Blue Granite 3. Once SBSA stops purchasing non performing mortgage loans Moody's expects the arrears greater than 90 days to exceed the predefined arrears trigger levels. In case of a breach of the arrears trigger, the revolving period will stop and excess spread will be captured into an arrears reserve.

Moody's will continue to closely monitor all these transactions. The review will focus on the pool characteristic's and the arrears performance of each transaction and other structural features that may affect the credit enhancement to the notes following the end of the purchase of non-performing loans by SBSA, such as excess spread trapping mechanisms and the end of the replenishment period.

COMPLETE LIST OF RATING ACTIONS

Issuer: Blue Granite Investments No 3 (Pty) Ltd

- Class D, Mortgage Backed Floating Rate Notes, current rating: Baa2/A2.za, on review for possible downgrade.

Previous rating action: 3 August 2007, assignment of global scale rating and application of refined national scale rating methodology (previous rating Baa2.za)

- Class E, Mortgage Backed Floating Rate Notes, current rating: Ba2/Baa2.za, on review for possible downgrade.

Previous rating action: 3 August 2007, assignment of global scale rating and application of refined national scale rating methodology (previous rating Ba2.za)

- Class F, Mortgage Backed Floating Rate Notes, current rating: B2/Ba3.za, on review for possible downgrade.

Previous rating action: 3 August 2007, assignment of global scale rating and application of refined national scale methodology (previous rating B2.za)

Issuer: Blue Granite Investments No 4 (Pty) Ltd

- Class C, Mortgage Backed Floating Rate Notes, current rating: A2, on review for possible downgrade.

- Class D, Mortgage Backed Floating Rate Notes, current rating: Baa2, on review for possible downgrade.

- Class E, Mortgage Backed Floating Rate Notes, current rating: Ba2, on review for possible downgrade.

- Class F, Mortgage Backed Floating Rate Notes, current rating: B2, on review for possible downgrade.

No previous rating action since the initial ratings on 7 March 2007.

Moody's initially analysed and monitors this transaction 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. These methodologies can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these transactions can also be found in the same section of our website.

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 transaction. Non-credit risks have not been addressed, but may have a significant effect on yield to investors.

For further information on the respective transactions, please refer to www.moodys.com or contact Moody's Client Service Desk at +44-20 7772 5454.

Frankfurt
Marie-Jeanne Kerschkamp
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Ariel Weil
Vice President - Senior Analyst
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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