Fitch Affirms Thekwini Conduit Following Restructuring
Fitch Ratings-London/Johannesburg-16 March 2010: Fitch Ratings has today affirmed Thekwini Warehousing Conduit's (Proprietary) Limited (Thekwini Conduit) commercial paper (CP) at National Short-term 'F1+(zaf)', 'F1(zaf)' and 'F2(zaf)' respectively.
The affirmation follows a restructuring of the Thekwini Conduit by the arranger and administrator, The Standard Bank of South Africa (SBSA, rated 'AA(zaf)'/Stable/'F1+(zaf)'/. The affirmation also follows the review of the Thekwini Conduit. Fitch has remodelled and re-evaluated the revised structure in terms of its current RMBS (residential mortgage backed securities) and ABCP (asset-backed CP) criteria.
The restructure of the conduit includes restricting the tenor of CP issued to a maximum of six months, the removal of the ability to issue short-term extendible and/or callable notes and the implementation of a non-performing loan facility (NPL facility) to cover 60% of the value of NPLs. The latter has been factored into Fitch's analysis of the credit enhancement.
Under the previous structure CP investors were exposed to the risk that mortgage loans default during the term of the CP and that such defaults exhaust the level of credit enhancement then available in the conduit. With the NPL facility, the exposure of CP investors to this risk under the programme will be reduced. Mortgage delinquencies have risen over the past two years in South Africa in response to high interest rates and the economic recession. Nevertheless, the arrears in Thekwini Conduit have remained at fairly low levels. Amongst other things, this is due to the fact that South African Home Loans (SAHL), the mortgage originator, has tended to buy defaulted mortgage loans out of the pool. The conduit defines a defaulted mortgage loan as one that is more than three months in arrears. Previously, SAHL had no obligation to purchase defaulted loans under the terms of the transaction documents. Under the restructure it is now an obligation of SBSA to buy defaulted loans at 60% of their value under the NPL facility upon a NPL trigger being hit.
The NPL facility will be available on a same day basis and will be drawn once credit enhancement has been depleted. SBSA in conjunction with SAHL will determine the credit enhancement levels prior to issuance of CP and on a monthly basis.
As part of its annual review process, Fitch conducted on-site discussions with the management of SAHL and SBSA, as arranger and administrator. The review covered commercial paper issuance, IT administration systems, administrative procedures, credit policies and portfolio composition. The team charged with the administration of the programme has been stable and is experienced in administering conduits.
As of end-February 2010, Thekwini Conduit had a total of ZAR2.679bn CP notes outstanding, split between ZAR2.59bn CP notes rated 'F1+(zaf)', ZAR43.7m notes rated 'F1(zaf)' and ZAR45.4m notes rated 'F2(zaf)'. The conduit also benefits from a subordinated loan sized at just over ZAR69.6m.
Thekwini Conduit is a single-seller ABCP conduit backed by mortgage loans originated by SAHL. The conduit issues various tranches of CP to fund the purchase of mortgage loans, and the programme also benefits from a subordinated loan provided by SAHL.
A revised rating report for the Thekwini Conduit will be available shortly at www.fitchratings.com.
Applicable criteria, 'Global Rating Criteria for Asset-Backed Commercial Paper', published on 22 October 2009; and 'Criteria for Rating Residential Mortgage Securitisations in Emerging Markets - EMEA', published on 30 September 2008; are available on www.fitchratings.com.
Contacts: Emma-Jane Fulcher, London, Tel: +44 (0) 20 7417 3529; Peter Winning, +44 (0) 20 7682 7492.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com.
EMEA Structured Finance Snapshot:
Further information on Fitch's EMEA structured finance offering can be found in "EMEA Structured Finance Snapshot", which is available at www.fitchratings.com. The Snapshot consolidates and highlights the key research and commentary produced by the agency's EMEA structured finance group and includes previously unpublished Fitch data and multimedia content that will be updated each quarter.
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