Fitch Affirms 11 Tranches & Downgrades 1 Tranche of 2 Ikhaya Transactions; 3 Outlooks Revised to Neg
Fitch Ratings-London-26 May 2009: Fitch Ratings has today affirmed 11 tranches and downgraded one tranche of two Ikhaya RMBS (Pty) Ltd transactions following a performance review. The agency has simultaneously revised the Outlooks of three tranches to Negative from Stable, and assigned Loss Severity (LS) Ratings to all tranches. A full rating breakdown is provided at the end of this comment.
The Ikhaya 1 RMBS (Pty) Ltd (Ikhaya 1) and the Ikhaya 2 RMBS (Pty) Ltd (Ikhaya 2) transactions are backed by mortgage loans originated by FNB Home Loans, a division of FirstRand Bank Limited ('AA(zaf)'/'F1+'/Negative), and have similar structures.
Ikhaya 1, issued in April 2007, has displayed increasing arrears across all arrears buckets since closing, with arrears of more than three months increasing to 6.18% as of March 2009 from 4.26% in December 2008. The arrears levels in Ikhaya 1 are higher than in other South African RMBS transactions and the trend appears to be accelerating. Therefore despite the arrears reserve continuing to be funded at its required amount, Fitch has become concerned about the high levels of arrears which are higher than initial expectations. This has led the agency to revise the Outlook on the class D notes to Negative from Stable.
Ikhaya 2, issued in August 2007, has also displayed increasing arrears across all arrears buckets since closing, with arrears of more than three months increasing to 6.88% as of March 2009 from 4.80% in December 2008. The arrears reserve continues to be funded via excess spread at its required amount. However, the high arrears levels have raised Fitch's concern, in similarity with Ikhaya 1. The class E notes have limited credit enhancement (0.39%) and are therefore sensitive to the high arrears rate flowing through into defaults and losses. Fitch has therefore downgraded the class E note to 'BB(zaf)' from 'BB+(zaf)' and revised its Outlook to Negative from Stable. In addition, the Outlook for the class D notes has also been revised to Negative from Stable for similar reasons.
The transaction's ratings are as follows:
Ikhaya 1 RMBS (Pty) Ltd:
Class A3: affirmed at 'AAA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-1'
Class A4: affirmed at 'AAA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-1'
Class A5: affirmed at 'AAA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-1'
Class B: affirmed at 'AA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-2'
Class C: affirmed at 'A(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-3'
Class D: affirmed at 'BBB(zaf)'; Outlook revised to Negative from Stable; assigned a Loss Severity Rating of 'LS-3'
Ikhaya 2 RMBS (Pty) Ltd:
Class A2: affirmed at 'AAA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-1'
Class A3 : affirmed at 'AAA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-1'
Class B: affirmed at 'AA(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-2'
Class C: affirmed at 'A(zaf)'; Outlook Stable; assigned a Loss Severity Rating of 'LS-2'
Class D: affirmed at 'BBB(zaf)'; Outlook revised to Negative from Stable; assigned a Loss Severity Rating of 'LS-3'
Class E: downgraded to 'BB(zaf)' from 'BB+(zaf)'; Outlook revised to Negative from Stable; assigned a Loss Severity Rating of 'LS-3'
Further commentary and performance data on the transaction are available on the agency's subscription website, www.fitchresearch.com.
Contacts: Joshua Cohen, Johannesburg, Tel: +27 11 380 0907; Alfons Ideler: +27 11 380 0901.
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.
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.
101 Finsbury Pavement, London, EC2A 1RS