London, 26 November 2020 -- Moody's Investors Service ("Moody's") has today
downgraded the global scale ratings (GSRs) of 49 notes in 10 South African
RMBS and auto loan ABS, and affirmed the GSRs of 16 notes.
In addition, Moody's has affirmed the national scale ratings (NSRs)
of 53 notes, upgraded the NSR of 3 notes and downgraded the NSRs
of 9 notes as a result of revisions to the NSR map following the downgrade
of the sovereign debt rating of the Government of South Africa.
The rating actions are prompted by the lowering of the South Africa's
local-currency country ceiling to Baa1 from A3. Today's
rating action follows the weakening of the South African government's
credit profile, as noted by Moody's downgrade of the sovereign rating
to Ba2 from Ba1 on 20 November 2020 http://www.moodys.com/viewresearchdoc.aspx?docid=PR_436182.
Moody's also took into consideration the downgrade of the counterparties'
long term deposit rating and CR assessment, following the revisions
to the NSR map as a consequence of the downgrade to the sovereign debt
rating for the Government of South Africa.
Moody's has affirmed the GSR of the notes that had sufficient credit enhancement
to maintain the current rating level on the affected notes.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL436705
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL436705
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Principal Methodologies Used
• Key Rationale for Action
• Constraining factors on the ratings
The rating action follows Moody's downgrade of the long-term issuer
and senior unsecured ratings of the Government of South Africa to Ba2
from Ba1, and the outlook remains negative. South Africa's
long-term local currency bond and deposit ceilings were lowered
to Baa1 from A3. As a result, the maximum achievable ratings
for structured finance transactions backed by South African receivables
is lowered to Baa1 (sf) from A3 (sf).
For additional information on the sovereign action, please refer
to the related announcement "Moody's downgrades South Africa's ratings
to Ba2, maintains negative outlook" (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_436182),
published on 20 November 2020.
The increase in sovereign risk is also reflected in Moody's quantitative
analysis for mezzanine and junior tranches. Moody's Individual
Loan Analysis Credit Enhancement (MILAN CE) for RMBS transactions,
and the portfolio credit enhancement (PCE) for an ABS transaction represent
the required credit enhancement under the senior tranche for it to achieve
the country ceiling. Lowering the maximum achievable rating for
a given MILAN CE or PCE alters the loss distribution curve and implies
increased probability of high loss scenarios which may impact the rating
of mezzanine and junior notes as well.
Counterparty Exposure
Today's rating actions also took into consideration the notes' exposure
to relevant counterparties, such as servicer, liquidity provider,
account banks or swap providers.
On 24 November 2020, Moody's downgraded to Ba2 from Ba1, the
long-term local- and foreign-currency deposit ratings
of The Standard Bank of South Africa Limited, ABSA Bank Limited,
Nedbank Limited and FirstRand Bank Limited, key counterparties in
the affected transactions, following the downgrade of the sovereign
rating. For additional information on the South African banks'
action, please refer to the related announcement "Moody's downgrades
the deposit ratings of five South African banks following the downgrade
of the South African sovereign" (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_436406),
published on 24 November 2020. As a result, Moody's incorporated
current counterparty ratings in its analysis.
In the case of GreenHouse Funding 5 (RF) Limited, the notes are
issued prior to transfer of the assets. This "pre-funding"
period for subsequent issuances could last up to six months, in
order to allow sufficient time for delays which can occur in registering
the cession of the assets at the deeds registry. Consequently,
funds from the notes issuance will initially be paid into the GIC account
instead of immediately being applied to pay for the assets. The
application of 100% of subsequent issuances to the GIC account
substantially increases account bank risk, and there is limited
mitigation from the required rating of the account bank which needs to
be rated A3.za, which corresponds to a GSR of B1.
Furthermore, significant cashflows may be accumulated in the account
bank for the purpose of repaying notes at their scheduled maturity.
As a result of the high exposure to the account bank (Nedbank Limited;
Ba2/ NP) the ratings of the notes are currently capped at Ba2 (sf).
In the case of Nqaba Finance 1 (RF) Limited ("Nqaba"), today's downgrades
reflects the increased sovereign risk and the downgrade of Eskom Holdings
SOC Limited ("Eskom") (Caa1) (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_436580).
Moody's has considered in its ratings the large exposure of Nqaba
to employees of Eskom, as Nqaba is the securitisation of home loans
advanced by Eskom Finance Company SOC Limited ("EFC") to the
employees of Eskom (a South African state-owned utility provider,
which generates, transmits and distributes almost all of the country's
electricity), and its subsidiaries.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of consumer assets from the
current weak South African economic activity and a gradual recovery for
the coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less relevant
or typically remain unchanged during the surveillance stage. Please
see "Moody's Approach to Rating RMBS Using the MILAN Framework"
for further information on Moody's analysis at the initial rating
assignment and the on-going surveillance in RMBS.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the ratings
include: (1) performance of the underlying collateral that is better
than Moody's expected; (2) an increase in available credit enhancement;
(3) improvements in the credit quality of the transaction counterparties;
and (4) a decrease in sovereign risk
Factors or circumstances that could lead to a downgrade of the ratings
include: (1) an increase in sovereign risk; (2) performance
of the underlying collateral that is worse than Moody's expected;
(3) deterioration in the notes' available credit enhancement; and
(4) deterioration in the credit quality of the transaction counterparties.
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_1216309.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL436705
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
• Person Approving the Credit Rating
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the website.
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.
Lam Tran Ngoc
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Masako Oshima
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Michelangelo Margaria
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Antonio Tena
VP - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
