RPT-Fitch Assigns SASP Series 1 Expected Ratings; Takes Actions on Existing Notes

Tue Jul 22, 2014 7:06am EDT

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July 22 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned South African Securitisation Programme (RF) Limited's (SASP) Series 1 class A18, A19, 3B4 and 3C4 notes expected National Long-term ratings as follows:

ZAR200m Class A18 notes: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR50m Class A19 prefinancing notes: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR99m Class 3B4 notes: 'A(zaf)(EXP)'; Outlook Stable

ZAR35m Class 3C4 notes: 'BBB+(zaf)(EXP)'; Outlook Stable

The assignment of the final ratings is contingent on receiving the final documents conforming to the information already reviewed.

The transaction securitises a granular pool of equipment leases granted to South African SME and other obligors.

Fitch has simultaneously affirmed the National Long-term ratings on the outstanding class A and class B, and upgraded the class C notes previously issued by SASP as follows:

ZAR50m Class A8 notes: 'AAA(zaf)'; Outlook Stable

ZAR200m Class A11 notes: 'AAA(zaf)'; Outlook Stable

ZAR200m Class A12 notes: 'AAA(zaf)'; Outlook Stable

ZAR132m Class A14 notes: 'AAA(zaf)'; Outlook Stable

ZAR189m Class A15 notes: 'AAA(zaf)'; Outlook Stable

ZAR180m Class A16 notes; 'AAA(zaf)'; Outlook Stable

ZAR182m Class A17 notes; 'AAA(zaf)'; Outlook Stable

ZAR86m Class 3B2 notes: 'A(zaf)'; Outlook Stable

ZAR13m Class 3B3 notes: 'A(zaf)'; Outlook Stable

ZAR29m Class 3C2 notes: upgraded to 'BBB+(zaf)' from 'BBB(zaf)'; Outlook Stable

ZAR6m Class 3C3 notes: upgraded to 'BBB+(zaf)' from 'BBB(zaf)'; Outlook Stable

ZAR164m subordinated loans (to be increased to ZAR170m): Not rated

The class A18, 3B4 and 3C4 notes will be issued to refinance the maturing the

class A11, 3B2, 3B3, 3C2 and 3C3 notes on 18 August 2014.

Despite its status of prefinancing notes, the proceeds from Class A19 will be used to purchase additional equipment leases. The total balance of the rated notes will consequently increase to ZAR1,317m from ZAR1,267m until class A8's scheduled maturity date in November 2014. An additional ZAR6.3m subordinated loan will be issued to maintain the minimum overcollateralisation amount at 12.54% of the rated notes, as required by the documentation.

Fitch understands from the issuer that the class A8 notes maturing in November will be redeemed with the cash available on the issuer's accounts. No additional notes are expected to be issued at that time, bringing the total balance of rated notes back to ZAR1,267m. The additional subordinated loan is also expected to mature at the same time as the class A8 notes.

KEY RATING DRIVERS

Improved Industry Classification The upgrade of the class C notes reflects analytical improvement in industry classification of the obligors. Sasfin has historically provided industry classification based on local industry codes that could not be directly mapped into Fitch's portfolio default model. For this refinance, Sasfin has provided three-digit Standard Industry Classification codes that could be mapped to the industries in Fitch's model using a mapping table from Statistics South Africa. This enhanced the analysis that was previously based on conservative mapping assumptions. The result was increased industry granularity - a key driver in SME CLO criteria.

Obligor Default Risk Paramount

The key risk factor in the analysis is the obligor's default risk. Fitch maintains a base case one-year default probability equivalent to the 'B+' international-scale rating for each obligor. Given the nature of the leased products and their limited liquidation value, the main rating driver is the expected default rate, whereas recoveries carry a smaller weight. The base case recovery rate is 20%.

Strong Servicing Capability

Sasfin, the originator, was the appointed servicer at closing. The servicer is allowed to delegate collections to third parties, although delegation is limited to 10% of the portfolio, unless such party has been reviewed by Fitch. Fitch deems Sasfin's ability to service the portfolio adequate, given its extensive experience in the equipment leasing sector. The transaction also benefits from a standby servicer (Outsourced Securitisation Services).

Triggers Protect Portfolio Composition

The transaction's evolving period is indefinite until an early amortisation event occurs. Eligibility and concentration criteria, in combination with stop-purchase and stop-issuance triggers, provide protection against the deterioration of the portfolio composition.

Robust Past Performance

Series 1 was established in its current form in 2007. Fitch has since monitored the performance, which has consistently been in line with the agency's expectations. As of end-April 2014, the 12-month annualised average default and loss rates were 1.5% and 0.9% respectively.

Stable Outlook despite Sovereign

The asset outlook for South African equipment leases remains stable. Lease delinquency levels continue to be low. Fitch expects some deterioration relative to the most recent historical performance, due to the overall slowdown of the South African economy. Adverse rating action is unlikely, as rated transactions generally benefit from sound asset yields supporting a robust level of excess spread. Additionally, Fitch has stressed in its analysis such potential performance deterioration.

RATING SENSITIVITIES

Rating sensitivity to increased default probabilities (class A / B / C)

Current ratings: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB+(zaf)(EXP)'

Increase default probability by 1.25x: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB(zaf)(EXP)'

Increase default probability by 1.5x: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB(zaf)(EXP)'

Rating sensitivity to reduced recovery rates (class A / B / C) Current ratings: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB+(zaf)(EXP)'

Reduce recovery rates by 0.75x: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB+(zaf)(EXP)'

Reduce recovery rates by 0.5x: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB+(zaf)(EXP)'

Rating sensitivity to increased default probability and correlation, and reduced recovery rate (class A / B / C)

Current ratings: 'AAA(zaf)(EXP)' / 'A(zaf)(EXP)' / 'BBB+(zaf)(EXP)'

Increase default probability by 1.25x, reduce recovery rates by 0.75x, and multiply country correlation by 2x: 'AA(zaf)(EXP)' / 'A-(zaf)(EXP)' / 'BB(zaf)(EXP)'

Key Rating Drivers and Rating Sensitivities are further described in the accompanying Presale report.

Link to Fitch Ratings' Report: South African Securitisation Programme (RF) Limited

here

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