OREANDA-NEWS. July 07, 2015. Fitch Ratings has affirmed and upgraded Blue Granite Investments No. 1(Proprietary) Limited's (Blue Granite) notes as follows:

Class A4 notes: affirmed at 'AAA(zaf)'; Outlook Stable
Class B notes: upgraded to 'AAA(zaf)'; from 'AA(zaf)'; Outlook Stable

The transaction comprises South African mortgage loans originated by SA Home Loans (SAHL) and serviced by Standard Bank of South Africa (SBSA; AA(zaf)/Stable/F1+(zaf)).

Key Rating Drivers

Stable Asset Performance
Arrears exceeding three months have been stable since 2010 and are currently 6.4% (excluding non-performing loans) as of the May 2015 interest payment date (IPD). Non-performing loans (loans with arrears exceeding six months), from which further losses are expected, have also been broadly stable at 4.3% of the current pool balance.

Credit Enhancement
The notes are supported by three fully funded reserves available to cover potential losses. These comprise a cash reserve and a redraw reserve, which amortise to 1% and 2.25% respectively of the initial note and outstanding note balances, as well as an arrears reserve fund, which has remained at ZAR79m since November 2010, or 7.9% of the current note balance. Deleveraging has increased credit enhancement for the class A4 and B notes to 33.2% and 28.5% respectively as of the May 2015 IPD.

As of end-May 2015, annualised gross excess spread generated through asset yields and the amortisation of the interest reserve amounted to 2.2% of the current asset balance. This has to date been sufficient to cover cumulative losses of 0.8%. Given these excess spread levels, we do not expect any draws on the reserves in the near future.

As the transaction structure does not switch to sequential payment there is tail end risk, although this is mitigated by sufficient credit enhancement throughout the life of the transaction to protect the rated notes.

Asset Repurchase and Replacement
The seller has a discretionary option to purchase non-performing loans up to 10% of the initial pool balance. By end-May 2010, 5% of the initial pool balance had been repurchased and no further repurchases have been made since.

Since the breach of a delinquency trigger causing early amortisation of the transaction in May 2009, Blue Granite no longer funds redraws or further advances. If requested by a borrower, redraws or advances are funded by a third party SPV, which has the subsequent option to purchase the respective loans. Redraws and advances are granted at the lender's discretion and are not a contractual obligation.

RATING SENSITIVITIES
Rating sensitivity to increases in weighted average foreclosure frequency (WAFF) (class A4/class B)
Current ratings: 'AAA(zaf)'/'AAA(zaf)'
Increase base case by 25%: 'AAA(zaf)'/'AAA(zaf)'
Increase base case by 50%: 'AAA(zaf)'/'AA+(zaf)'

Rating sensitivity to decreases in weighted average recovery rates (WARR) (class A4/class B)
Current ratings: 'AAA(zaf)'/'AAA(zaf)'
Decrease base case by 25%: 'AAA(zaf)'/'AAA(zaf)'
Decrease base case by 50%: 'AAA(zaf)'/'AA+(zaf)'

Rating sensitivity to shifts in multiple factors (class A4/class B)
Current ratings: 'AAA(zaf)'/'AAA(zaf)'
WAFF increases by 25%, WARR decreases by 25%: 'AAA(zaf)'/'AA+(zaf)'
WAFF increases by 50% and WARR decreases by 50%: 'A-(zaf)'/'BBB(zaf)'

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Updated loan-by-loan data provided by SAHL
-Quarterly investor reports provided by SAHL

MODELS
Excel-based Residential Mortgage Asset Model
EMEA Cash Flow Model