Fitch: Blue Granite Arrears Levels a Concern
Fitch Ratings-London/Johannesburg-21 September 2009: Fitch Ratings says that the rapid performance deterioration in the Blue Granite Series of RMBS transactions during 2009 is a significant concern.
All four transactions in the series have seen rapidly rising levels of loans in arrears, with loans in arrears by three or more months, including loans in legal proceedings, equal to 3.32% of the current portfolio balance in Blue Granite 1, 2.75% in Blue Granite 2, 2.84% in Blue Granite 3, and 2.78% in Blue Granite 4 as of end-August 2009. Total arrears levels in the transactions have, however, seen some signs of stabilisation, with total arrears declining in Blue Granite 1 and 4 since the beginning of 2009.
"Rising arrears levels are a leading indicator of future defaults. Although these transactions contain mechanisms to trap excess spread to protect against rising arrears, Blue Granite 2 and Blue Granite 4 did not have sufficient revenue in the last period to build up these reserves to their required levels," says Alfons Ideler, Director in Fitch's South African Structured Finance team.
The shortfall of the arrears reserve for the two transactions is ZAR1,450,734 (equivalent to 4.26% of the required amount) for Blue Granite 2, and ZAR4,496,563 (7.72% of the required amount) for Blue Granite 4. Although not at their required level the ability to trap cash is still a positive for the transactions.
All the transactions breached arrears triggers in early 2009, since when they have entered an early amortisation phase. Fitch views this as a positive as it allows credit enhancement to grow for the senior tranches; however, the speed of arrears growth and the low level of prepayment being seen in these pools means that the ratings of the junior notes remain at risk of negative rating action.
In February 2009 Fitch revised the rating outlook on the junior class E and class F notes of Blue Granite 2 to Negative in expectation of deterioration in performance.
Blue Granite Investments No. 1 (Pty) Limited (Blue Granite 1) consists of loans originated by South African Home Loans (SAHL), while Blue Granite Investments No. 2 (Pty) Limited (Blue Granite 2), Blue Granite Investments No. 3 (Pty) Limited (Blue Granite 3) and Blue Granite Investments No. 4 (Pty) Limited (Blue Granite 4) consist of loans originated by The Standard Bank of South Africa Limited (SBSA).
The current ratings of the transactions are as follows:
Blue Granite Investments No. 1 (Pty) Limited:
Class A1 (ISIN ZAG000026824): 'AAA(zaf)'; Outlook Stable
Class A2 (ISIN ZAG000026907): 'AAA(zaf)'; Outlook Stable
Class A3 (ISIN ZAG000026832): 'AAA(zaf)'; Outlook Stable
Class A4 (ISIN ZAG000026840): 'AAA(zaf)'; Outlook Stable
Class B (ISIN ZAG000026857): 'AA(zaf)'; Outlook Stable
Blue Granite Investments No. 2 (Pty) Limited:
Class A1 (ISIN ZAG000031246): 'AAA(zaf)'; Outlook Stable
Class A2 (ISIN ZAG000031253): 'AAA(zaf)'; Outlook Stable
Class A3 (ISIN ZAG000031261): 'AAA(zaf)'; Outlook Stable
Class B (ISIN ZAG000031279): 'AA(zaf)'; Outlook Stable
Class C (ISIN ZAG000031287): 'A(zaf)'; Outlook Stable
Class D (ISIN ZAG000031311): 'BBB(zaf)'; Outlook Stable
Class E (ISIN ZAG000031295): 'BB(zaf)'; Outlook Negative
Class F (ISIN ZAG000031303): 'B(zaf)'; Outlook Negative
Blue Granite Investments No. 3 (Pty) Limited:
Class AO (ISIN ZAG000034687): 'AAA(zaf)'; Outlook Stable
Class A1 (ISIN ZAG000034638): 'AAA(zaf)'; Outlook Stable
Class A2 (ISIN ZAG000034711): 'AAA(zaf)'; Outlook Stable
Class A3 (ISIN ZAG000034703): 'AAA(zaf)'; Outlook Stable
Class B (ISIN ZAG000034646): 'AA(zaf)'; Outlook Stable
Blue Granite Investments No. 4 (Pty) Limited:
Class AO (ISIN ZAG000037276): 'AAA(zaf)'; Outlook Stable
Class A1 (ISIN ZAG000038225): 'AAA(zaf)'; Outlook Stable
Class A2 (ISIN ZAG000037284): 'AAA(zaf)'; Outlook Stable
Class B (ISIN ZAG000037292): 'AA(zaf)'; Outlook Stable
Contacts: Alfons Ideler, Johannesburg, Tel: + 27 (0)11 380 0901; Peter Dossett, London, Tel: +44 (0)20 7682 7427.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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