Madrid, June 19, 2020 -- Moody's Investors Service ("Moody's") has today downgraded the global
scale ratings (GSRs) of 9 notes in Transsec 3 (RF) Limited (Transsec 3)
and Transsec 4 (RF) Limited (Transsec 4), including one short-term
GSR, and confirmed the rating of 7 GSRs. In addition,
Moody's has affirmed the national scale rating (NSRs) of 11 notes and
downgraded the NSRs of 5 notes, including one short-term
NSR. Today's action concludes the placing under review of
these notes due to the economic disruption caused by the coronavirus outbreak.
LIST OF AFFECTED RATINGS:
Issuer: Transsec 3 (RF) Limited
....ZAR 179,000,000 Class A2 Notes
due 2027, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 166,000,000 Class A3 Notes
due 2027, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 74,000,000 Class A4 Notes
due 2027, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 173,000,000 Class A6 Notes
due 2027, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 104,000,000 Class A7 Notes
due 2027, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 84,000,000 Class B Notes
due 2027, Downgraded to Ba3 (sf) / A2.za (sf); previously
on Apr 3, 2020 Baa3 (sf) / Aa1.za (sf) Placed Under Review
for Possible Downgrade
....ZAR 90,000,000 Class B (2017)
Notes due 2027, Downgraded to Ba3 (sf) / A2.za (sf) ;
previously on Apr 3, 2020 Baa3 (sf) / Aa1.za (sf) Placed
Under Review for Possible Downgrade
Issuer: Transsec 4 (RF) Limited
....ZAR 300,000,000 Class A2 Notes
due 2029, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 221,000,000 Class A3 Notes
due 2029, Downgraded to Baa2 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 92,000,000 Class A4 Notes
due 2029, Downgraded to Baa2 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 88,000,000 Class A5 Notes
due 2020, Downgraded to NP (sf) / P-3.za (sf);
previously on Apr 3, 2020 P-3 (sf) / P-1.za
(sf) Placed Under Review for Possible Downgrade
....ZAR 270,000,000 Class A6 Notes
due 2029, Confirmed at A3 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 81,000,000 Class A7 Notes
due 2029, Downgraded to Baa2 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 62,000,000 Class A8 Notes
due 2029, Downgraded to Baa2 (sf) / Affirmed Aaa.za (sf);
previously on Apr 3, 2020 Downgraded to A3 (sf) and Placed Under
Review for Possible Downgrade / Affirmed Aaa.za (sf)
....ZAR 160,000,000 Class B Notes
due 2029, Downgraded to B2 (sf) / Baa3.za (sf); previously
on Apr 3, 2020 Ba1 (sf) / Aa3.za (sf) Placed Under Review
for Possible Downgrade
....ZAR 102,000,000 Class B2 Notes
due 2029, Downgraded to B2 (sf) / Baa3.za (sf); previously
on Apr 3, 2020 Ba1 (sf) / Aa3.za (sf) Placed Under Review
for Possible Downgrade
RATINGS RATIONALE
The rating actions are prompted by increased uncertainties in the transactions'
cashflows and deterioration in collateral performance due to the coronavirus-induced
lockdown in South Africa. The securitised assets are made up of
instalment sale agreements extended by SA Taxi Holdings (Pty) Ltd (SA
Taxi) through Potpale Investments (RF) (Pty) Ltd to obligors located in
South Africa. The obligors are minibus taxi operators classified
as commercial small, medium- and micro-sized enterprises.
The South African government's lockdown to slow the spread of the coronavirus
has constrained these operators' abilities to make payments when originally
due.
In order to provide relief to those facing financial hardship, obligors
in the portfolios have been granted payment holidays. The take-up
of payment holidays has been high at 72% for the Transsec 3 portfolio
and 82% for Transsec 4 as of April 2020, putting pressure
on cashflows in both deals. Monthly collections improved in May
compared to April, as a result of the easing of containment measures
in South Africa, but still both transactions are subject to the
uncertainties in the next coming months. This is especially sensitive
in the case of Class A5 Notes in Transsec 4, with its final legal
maturity in two payment dates, in October 2020. The uncertainties,
coupled with recently observed and the anticipated deterioration in the
underlying asset performance, has driven the downgrade of Class
A5 Notes in Transsec 4 to NP/P-3.za from P-3,
on review for downgrade/P-1.za, on review for downgrade
and downgrade of other affected Notes in Transsec 3 and Transsec 4.
Moody's took into account the different sources of liquidity available
in both deals, including the liquidity facility in place.
Moody's has increased the expected loss assumption in both deals
to 7.8% and 8.4% of original balance respectively
for Transsec 3 and Transsec 4 from 5.6% and 6.0%
respectively as a result of both recently observed and the anticipated
deterioration in collateral performance. Moody's increased the
mean default assumption as a percentage of current pool balance to 20%
in both deals, translating into a mean default assumption of 27.2%
and 20.4% of the original pool balance in Transsec 3 and
Transsec 4 respectively. Moody's has also increased the Portfolio
Credit Enhancement (PCE) to 32% from 28% in both deals.
Our analysis has considered the increased uncertainty relating to the
effect of the coronavirus outbreak on the South African economy as well
as the effects that the announced government measures put in place to
contain the virus, will have on the performance of small businesses.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
It is a global health shock, which makes it extremely difficult
to provide an economic assessment. The degree of uncertainty around
our forecasts is unusually high.
Moody's confirmed the GSRs of the 7 notes that had sufficient credit enhancement
(CE) to maintain the current rating on the affected notes. In Transsec
3, the CE for Classes A2 and A6 is 87.5%, and
41.2% for Classes A3, A4 and A7. In Transsec
4, the CE for confirmed Classes A2 and A6 is 59.6%,
while the downgraded GSR Classes A3, A4, A7 and A8 have a
CE of 29.9%.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Auto Loan- and Lease-Backed ABS" published in
May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1225845.
Alternatively, 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 or circumstances that could lead to an upgrade of the ratings
include: (i) performance of the underlying collateral that is better
than Moody's expected; (ii) deleveraging of the capital structure;
(iii) improvements in the credit quality of the transaction counterparties;
and (iv) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the ratings
include: (i) an increase in sovereign risk; (ii) performance
of the underlying collateral that is worse than Moody's expected;
(iii) deterioration in the notes' available credit enhancement; and
(iv) 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
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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 one of the credit rating
outcomes announced and described above.
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
Masako Oshima
Associate Managing Director
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
