London, 30 November 2012 -- Moody's Investors Service has today assigned provisional credit ratings to the following classes of notes to be issued The Thekwini Fund 10 (RF) Ltd (Thekwini 10):
- Rand[200.0]M Class A7 Mortgage Backed Floating Rate Notes due October 2038, Assigned (P)A1 (sf)/Aaa.za (sf)
- Rand[300.0]M Class A8/A9 Mortgage Backed Floating/Fixed Rate Notes due October 2038, Assigned (P)A1 (sf)/Aaa.za (sf)
Moody's issues provisional ratings in advance of the final sale of securities and the above rating reflects Moody's preliminary credit opinions regarding the transaction only. Upon a conclusive review of the final documentation and the final note structure, Moody's will endeavour to assign a definitive rating to the above notes. A definitive rating may differ from a provisional rating.
This rating action relates to the issuance of ZAR  Million of new notes that rank pari-passu with each existing class of notes issued by Thekwini 10. The total notes will increase to ZAR 3.700 million. The transaction is one of thirteen term securitisation of South African residential mortgage loans originated by SA Home Loans (Pty) Ltd ("SAHL") (not rated). The assets supporting the notes are prime mortgage loans secured on residential properties located in South Africa. SAHL is the servicer and administrator and the Standard Bank of South Africa ("SBSA")(A3 /P-2) is the back-up servicer and administrator.
A unique feature for this transaction, which differs from previous Thekwini transactions, relates to the Class A3, A6 & A9 notes which will initially pay a fixed rate coupon up to the IPD in July 2017. It will then switch to a floating rate linked to 3 month JIBAR. SBSA will provide an interest rate swap between the floating rate due on the mortgage loans and the fixed rate payable on these notes. Furthermore the Class A2/A5/A8 and A3/A6/A9 notes will pay principal sequentially until the IPD in July 2017 when they will switch to pro-rata principal payments.
The ratings are primarily based on the credit quality of the portfolio, its diversity, the structural features of the transaction and its legal integrity. From the assessment of the credit quality of the underlying mortgage loan pool as at 31 October 2012 and the portfolio covernants applicable to substitutions and additional mortgages to be added as part of this new issuance, Moody's determined the portfolio expected loss of 2.5% and MILAN Credit Enhancement (CE) of 11%.
The MILAN CE of 11.0% is lower than the sector average and is primarily due to (i) lower than average current weighted average LTV 67.6%; (ii) relatively short revolving period allowing for the addition of new mortgage loans for 6 months from this issuance; (iii) 16.8% of self employed borrowers, average for the SA market; (iv) unique 9.9% of "Edge" mortgage loans which have an initial interest-only period; and (v) 9.8% of non-owner occupied mortgage loans, average for the SA market.
The key drivers for the portfolio expected loss are (i) the historical default and loss performance on previous Thekwini transactions; (ii) performance of the SAHL book; (iii) exposure to "Edge" home loan product; (iv) benchmarking with comparable transactions in the South Africa RMBS market; and (v) the current economic environment in South Africa.
The ratings address the expected loss posed to investors by the legal final maturity. In Moody's opinion the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.
The V-Score for this transaction is Medium. The key driver for this score is the fact that this is a standard South African RMBS structure for which Moody's has about 12 years of historical performance data. The primary source of uncertainty surrounding our assumptions is the limited data points in a highly stressed environment and the fact that South Africa is a relatively young securitisation market. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V-Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.
Moody's Parameter Sensitivities: If the portfolio expected loss was increased from 2.5% of current balance to 5.0% of current balance and the MILAN CE was maintained at 11.0%, the model output indicates that the Class A7, A8/A9 notes would have been Aaa.za, assuming that all other factors remain equal. Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.
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".
The principal methodology used in this rating 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 noted that on 2 July 2012, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating implementation guidance for the temporary use of cash in structured finance transactions. If the revised rating implementation guidance is implemented as proposed, the rating on the notes should not be negatively affected. Please refer to Moody's Request for Comment, entitled "The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.
Moody's also noted that on 2 July 2012, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating implementation guidance for its "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions". If the revised rating implementation guidance is implemented as proposed, the rating on the Notes should not be negatively affected. Please refer to Moody's Request for Comment, entitled "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.
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John Paul Truijens Asst Vice President - Analyst Structured Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon 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 SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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