May 23 (The following statement was released by the rating agency)
Fitch Ratings has assigned Nqaba Finance 1 (RF) Limited's (Nqaba Finance 1) additional
floating-rate notes (FRN) National Long-term ratings, as follows:
ZAR200m class A16 FRN: 'AAA(zaf)'; Outlook Stable
ZAR302m class A17 FRN: 'AAA(zaf)'; Outlook Stable
ZAR40m class B15 FRN: 'AA(zaf)'; Outlook Stable
ZAR25m class C15 FRN: 'A+(zaf)'; Outlook Stable
ZAR30m class D7 FRN: 'A-(zaf)'; Outlook Stable
The new notes have been issued to refinance the existing class A9, A14, B9, B13
C9, C13 and D4 notes, all with a scheduled maturity of 22 May 2013. All other
existing notes will remain after the refinance date of 22 May 2013.
As discussed in the agency's comment dated 09 May 2013, 'Fitch Assigns Nqaba
Finance 1 Expected National Ratings; Affirms Existing Notes', listed below are
the recently affirmed notes that were previously issued by Nqaba Finance 1 and
that remain outstanding after the refinancing.
ZAR127m class A9 FRN, 'AAA(zaf)'/Outlook Stable
ZAR115m class A10 fixed-rate notes, 'AAA(zaf)'/Outlook Stable
ZAR205m class A11 FRN, affirmed at 'AAA(zaf)'/Outlook Stable
ZAR318m class A12 FRN, affirmed at 'AAA(zaf)'/Outlook Stable
ZAR375m class A14 FRN, affirmed at 'AAA(zaf)'/Outlook Stable
ZAR303m class A15 FRN, affirmed at 'AAA(zaf)'/Outlook Stable
ZAR30m class B9 FRN, affirmed at 'AA(zaf)'/Outlook Stable
ZAR11m class B10 FRN, affirmed at 'AA(zaf)'/Outlook Stable
ZAR32m class B11 FRN, affirmed at 'AA(zaf)'/Outlook Stable
ZAR10m class B13 FRN, affirmed at 'AA(zaf)'/Outlook Stable
ZAR8m class B14 FRN, affirmed at 'AA(zaf)'/Outlook Stable
ZAR12m class C9 FRN, affirmed at 'A+(zaf)'/Outlook Stable
ZAR5m class C10 FRN, affirmed at 'A+(zaf)'/Outlook Stable
ZAR32m class C11 FRN, affirmed at 'A+(zaf)'/Outlook Stable
ZAR13m class C13 FRN, affirmed at 'A+(zaf)'/Outlook Stable
ZAR5m class C14 FRN, affirmed at 'A+(zaf)'/Outlook Stable
ZAR30m class D4 FRN, affirmed at 'A-(zaf)'/Outlook Stable
ZAR5m class D5 FRN, affirmed at 'A-(zaf)'/Outlook Stable
ZAR24m class D6 FRN, affirmed at 'A-(zaf)'/Outlook Stable
Credit enhancement is provided by overcollateralisation and totals 26.00% for
the class A notes, 21.33% for the class B notes, 17.90% for the class C notes
and 14.87% for the class D notes. In addition, the transaction features
significant overcollateralisation of interest, resulting from the junior
position of the interest payable under the subordinated loan in the priority of
KEY RATING DRIVERS
The historical performance of the assets is strong relative to the rest of the
South African mortgage market, with rates of delinquency of 90 days of 0.7% as
of February 2013. This is due to the borrowers' stable employment background and
the collection of mortgage payments through payroll deduction.
The transaction is 'evergreen' revolving, since the purchase of new loans is
allowed until the breach of certain performance triggers. It is also subject to
certain covenants on the portfolio features. In addition, many borrowers also
have the ability to draw their loans further.
The transaction's performance is strongly dependent on that of Eskom as (i) the
large majority of borrowers are employed by Eskom and pay the instalments by
salary deduction; (ii) Eskom provides support to borrowers in the form of
subsidies; and (iii) as there is some operational dependency on Eskom or its
subsidiary EFC. Fitch therefore maintains a limited differential between the
rating of the notes and that of Eskom.
Overcollateralisation of Interest:
The interest due on the subordinated loan, which funds part of the mortgage
portfolio purchase price, is paid junior to the principal note allocations. This
provides significant overcollateralisation of interest and supports the senior
Planned Sale of EFC:
Eskom would be committed to maintaining payroll deductions and subsidy payments
to the borrowers despite the sale of EFC, as requested by the South African
government. However, the termination of the back-up servicing agreement with
ABSA, which will result from the sale of EFC, will further increase the
transaction's reliance on EFC to perform as a servicer.
Material increases in the frequency of defaults and loss severity on defaulted
receivables could produce loss levels higher than Fitch's base case
expectations, which in turn may result in potential rating actions on the notes.
The agency stressed its 'AAA' assumptions by 30% for both weighted average
foreclosure frequency and recovery rate. The stresses did not result in a
downgrade of the class A notes.
The percentage below which the proportion of loans serviced by payroll deduction
may not fall as a result of a purchase of new loans will be decreased to 92%
from 93% as of the date of the new notes issuance. However, this has no impact
on Fitch's existing analysis, as the agency already assumes a higher proportion
of borrowers leaving their employment with Eskom.
More detailed model implied ratings sensitivity can be found in the new issue
report, which will shortly be available at www.fitchratings.com.
For its ratings analysis, Fitch received a data template with most fields fully
completed. To analyse the CE levels, Fitch evaluated the collateral using its
default model, details of which can be found in the reports entitled 'EMEA RMBS
Master Rating Criteria', dated 7 June 2012 and 'EMEA Criteria Addendum - South
Africa' dated 21 February 2013', at www.fitchratings.com. The agency assessed
the transaction cash flows using default and loss severity assumptions under
various structural stresses including prepayment speeds and interest rate
scenarios. The cash flow tests showed that each class of notes could withstand
loan losses at a level corresponding to the related stress scenario without
incurring any principal loss or interest shortfall and can retire principal by
the legal final maturity.
Link to Fitch Ratings' Report: Nqaba Finance 1 (RF) Limited