OREANDA-NEWS. 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'.