OREANDA-NEWS. April 21, 2015. Fitch Ratings has assigned GreenHouse Funding III (RF) Limited (GreenHouse III) the following National Long-term ratings:

ZAR650m class A1 notes: 'AAA(zaf)'; Outlook Stable
ZAR400m class A2 notes: 'AAA(zaf)'; Outlook Stable
ZAR680m class A3 notes: 'AAA(zaf)'; Outlook Stable
ZAR80m class B notes: 'A(zaf)'; Outlook Stable
ZAR65m class C notes: 'BBB(zaf)'; Outlook Stable
ZAR100m class D notes: not rated
ZAR180m subordinated loan: not rated

GreenHouse III is a securitisation of mortgage loans originated by Nedbank Limited (AA(zaf)/Stable/F1+(zaf)) in South Africa. This is Nedbank's second stand-alone South African mortgage securitisation programme rated by Fitch.

Credit enhancement (CE) is provided by overcollateralisation based on total assets comprised of a mortgage loan portfolio of around ZAR2.05bn plus ZAR54.3m liquidity reserve and ZAR48.49m redraw reserve. At closing, CE represents 20.7% for the class A1 to A3 notes, 16.8% for the class B notes and 13.6% for the class C notes.

KEY RATING DRIVERS

Moderately High Portfolio Loss Expectations
The historical performance of Nedbank's mortgage loan book is slightly worse than the market average for South Africa. The agency has considered this by applying a 20% upward lender adjustment to the default probability at 'B(zaf)'. Fitch expects a lifetime default rate of 8.0% and a recovery rate of 82.5% on the portfolio, implying moderately high loss expectations for a South African mortgage transaction.

Limited Portfolio Movements
The issuer cannot purchase new loans, but may grant further advances and replace outstanding loans, subject to strict conditions. In its analysis Fitch has also accounted for loan redraws that borrowers are entitled to request under their loan agreements.

Significant Interest Deferral Risk
The lenient provisioning in the transaction - which is for losses as opposed to defaults - is compensated to an extent by the very tight interest deferral conditions. This means that the junior notes are relatively exposed to the risk of a temporary deferral of interest. Fitch considers the deferral of interest on the class C notes after the step-up date as particularly significant. This is factored into the ratings of the notes.

High proportion of automated valuation models (AVMs)
Approximately 61.7% of the pool was underwritten on the basis desktop valuations. Such valuations rely to a large extent on outputs from Lightstone's AVM. Fitch has adjusted its recovery assumptions according to its criteria and based on extensive automated and surveyor valuation data provided by Lightstone. The agency also draws comfort from the quality control process in place at Nedbank on automated valuations.

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 rating actions on the notes. Some examples of sensitivities to the foreclosure and recovery rates are below. Please note that the ratings for class A in the list below refer to sub-class A3 only. More senior sub-classes are less sensitive to the changes assumed below.

More detailed model implied ratings sensitivity can be found in the new issue report available at www.fitchratings.com.

Rating sensitivity to increased foreclosure rate (class A/B/C)
Current ratings (base case): 'AAA(zaf)'/'A(zaf)'/'BBB(zaf)'
Increase base case by 15%: 'AA+(zaf)'/'A(zaf)'/'BBB(zaf)'
Increase base case by 30%: 'AA-(zaf)'/'A(zaf)'/'BBB(zaf)'

Rating sensitivity to decreased recovery rate (class A/B/C)
Current ratings (base case): 'AAA(zaf)'/'A(zaf)'/'BBB(zaf)'
Decrease base case by 15%: 'AA+(zaf)'/'A(zaf)'/'BBB(zaf)'
Decrease base case by 30%: 'AA(zaf)'/'A(zaf)'/'BBB-(zaf)'

Rating sensitivity to increased foreclosure rate and decreased recovery rate (class A/B/C)
Current ratings (base case): 'AAA(zaf)'/'A(zaf)'/'BBB(zaf)'
Increase foreclosure rate by 15% and decrease recovery rate by 15%:
'AA(zaf)'/'A(zaf)'/'BBB(zaf)'
Increase foreclosure rate by 30% and decrease recovery rate by 30%:
'A(zaf)'/'BBB(zaf)'/'BB(zaf)'