Fitch Assigns Thekwini 12's Tap 3 Issue Expected Ratings

LONDON--(BUSINESS WIRE)-- 01 April 2015

Link to Fitch Ratings' Report: The Thekwini Fund 12 (RF) Limited - Tap 3 Issue (April 2015)

Fitch Ratings has assigned The Thekwini Fund 12 (RF) Limited's (Thekwini 12) tap issue notes expected National Long-term ratings, as follows:

ZAR424m class A10 notes: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR450m class A11 notes: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR0m class A12 notes: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR57m class B4 notes: 'A+(zaf)(EXP)'; Outlook Stable

ZAR49m class C4 notes: 'BBB-(zaf)(EXP)'; Outlook Stable

ZAR20m class D4 notes: Not rated

Fitch expects to affirm the existing tranches of Thekwini 12 once final ratings are assigned to this tap issue. The assignment of the final ratings is contingent on the receipt of final documents conforming to information already reviewed.

The transaction is a securitisation of residential mortgages originated by SA Home Loans (Pty) Ltd. (SAHL) in South Africa, which closed on 26 September 2014. The additional notes expected to be issued under this third tap are for ZAR1,000m, of which ZAR800m are expected to be rated. The above expected issuance breakdown is provided only as an indication; the final issuance amount, as well as the allocation of the class A notes issuance into A10, A11 and a possible fixed-rate A12 issuance, will be determined on the auction date.

Credit enhancement (CE) is provided by over-collateralisation and a reserve fund of 2.5% of the aggregate note balance as at the latest tap issue. After this tap issue, CE will total 15% for the class A notes, 9.3% for the class B notes and 4.4% for the class C notes.

KEY RATING DRIVERS

Strong Originator Performance

Fitch views the performance of mortgages originated by SAHL as slightly better than the average for the South African market at comparable loan-to-values (LTVs) and other loan features. SAHL's servicing and arrears management processes result in lower property sale discounts and shorter average work-out timelines than its peers. Fitch has consequently applied a 10% downward lender adjustment to the default probability at 'B(zaf)'.

Short Revolving Period

The transaction originally featured a revolving period of 18 months, ending in February 2016, where principal collections may be used to purchase additional home loans. These purchases are subject to the portfolio covenants, which Fitch considers sufficient to mitigate a material deterioration in performance.

Low LTVs Beneficial

The transaction features loans with a maximum loan-to-value (LTV) of 81% and a portfolio covenant that limits any increase in the weighted average (WA) current LTV of the initial portfolio to 1% during the revolving period. This covenant restricts deterioration in the credit quality of the initial portfolio and limits the dilution of potential recoveries through replenishment. The WA committed current LTV for the closing portfolio is 66.6%.

Stable Asset Outlook

Fitch expects mortgage performance to remain broadly stable in the near term, given the stability of unemployment over 2014. The current limited inflationary pressure also makes the prospects of rising interest rates more distant. We still expect housing appreciation to be 7.5% in 2015 and 6.5% in 2016, despite strong 2014 figures. Housing affordability should deteriorate slightly over the coming years, as growth in household income slows down.

RATING SENSITIVITIES

Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. In particular, default rates and recoveries that are respectively 15% higher and lower than currently assumed by the agency would result in a downgrade of the class A notes to 'AA(zaf)' from 'AAA(zaf)'.

For its ratings analysis, Fitch used the loan-by-loan information provided by SAHL and aggregate statistics that were compared with the original issuance. Fitch analysed the collateral using its mortgage loss model, as described in the applicable criteria. The agency assessed the transaction cash flows using its proprietary cash-flow model, described in 'EMEA Cash Flow Analysis Criteria'.

Additional information is available at www.fitchratings.com.

Sources of Information: Documents and data provided by Standard Bank of South Africa Limited and SAHL.

Applicable criteria: Criteria Addendum - South Africa - Residential Mortgage Loss and Cash Flow Assumptions, dated 06 June 2014; Global Structured Finance Rating Criteria, dated 04 August 2014; EMEA RMBS Master Rating Criteria dated 28 May 2014; EMEA Residential Mortgage Loss Criteria, dated 28 May 2014; EMEA RMBS Cash Flow Analysis Criteria, dated 28 May 2014; Counterparty Criteria for Structured Finance Transactions, dated 14 May 2014; Counterparty Criteria for Structured Finance Transactions: Derivative Addendum, 14 May 2014; Criteria for Servicing Continuity Risk in Structured Finance, dated 17 July 2014; National Scale Ratings Criteria, dated 30 October 2013 are available at www.fitchratings.com.

Applicable Criteria and Related Research:

Criteria Addendum: South Africa - Residential Mortgage Loss and Cash Flow Assumptions

Global Structured Finance Rating Criteria

EMEA RMBS Master Rating Criteria

EMEA Residential Mortgage Loss Criteria

EMEA RMBS Cash Flow Analysis Criteria

Counterparty Criteria for Structured Finance and Covered Bonds

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum

Criteria for Servicing Continuity Risk in Structured Finance

National Scale Ratings Criteria

Additional Disclosure

Solicitation Status

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Lauren Tierney
Director
+44 20 3530 1666
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Akimasa Okada
Analyst
+44 20 3530 1625
or
Committee Chairperson
Selena Greaney
Senior Director
+44 20 3530 1135
or
Media Relations
Athos Larkou, +44 203 530 1549
[email protected]

Source: Fitch Ratings

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